I’ve been investigating the feasibility of a launching new online retail operation for a couple of weeks. This is primarily for a client who’s attempting to move their established wholesale business into the consumer market. I’m also exploring the possibility of using retail as a means to monetize a website I own in the pet industry.
This post is both a brainstorming activity and an attempt to condense my own thoughts into something a bit more coherent. I’m sharing it here because—as unlikely as this is—my thoughts could be useful to some other aspiring entrepreneur exploring this area.
Shipping services in Australia are expensive, slow, and face very little competition.
Australia is geographically large but has a small population that’s heavily localized in a handful of dense urban areas. We have five significant population centres, some of which are thousands of kilometers apart.
Same-day shipping is virtually unheard of, except for businesses that operate solely within Sydney or Melbourne. Free shipping—or more accurately shipping costs built into the list price of the product—is also very rare for orders under a $100 or so.
Pet supplies are moderately low margin and most products are either small and inexpensive (such as treats and toys), or large and heavy—such as big bags of dog food. Neither of these are particularly well suited to eCommerce. A business could exclusively offer more economically-viable product ranges, but then they would struggle to compete against established competitors that offer a more comprehensive range.
Pet medications (worming, flea control, infection treatment, etc) make for a viable product niche. They’re small and easy to package, they’re applicable to all sorts of different pets (dogs, cats, fish, birds, rabbits) and they have decent profit margins. The limited product range would be an issue–people seem to prefer being able to order everything they need from a single seller.
The established oligopoly
PETstock and Pet Barn dominate the retail pet supply market in Australia. They’re both overpriced, but have somewhat comprehensive ranges. Nevertheless, those who keep more esoteric species as pets are unlikely to find the niche products they need.
Low-end pet products are sold by the major supermarket chains. Woolworths and Coles together have a 70% market share that gives them unrivalled buying power. There is absolutely no way to beat them on price, so a differentiation strategy (focusing on high end and niche products) is the only viable means to compete.
Online there are a number of decent sized pet product retailers. Their range is comprehensive and their prices are competitive, but they struggle with distribution and shipping costs. In other words, they struggle with all of the same things a potential new entrant struggles—only they already have an established brand and sales funnel.
Amazon’s imminent eminence
Currently Amazon’s local operation only sells books and eReaders, but that’s going to be changing very soon. They’ve already started building warehouses and will very likely dominate a huge portion of the online retail market.
Amazon is fundamentally a supply chain company, and there’s no limit to the range of product categories they can push through that supply chain.
- Amazon’s combined warehouse space is greater than the actual Amazon rainforest.
- Amazon’s retail stores (Whole Foods) serve as distribution depots.
- They’re investing heavily in drone delivery technologies.
- They’re using Kindle as a distribution platform for digital content.
- Amazon Dash buttons and Alexa are removing friction from the order process.
- Amazon Web Services is a cloud computing platform with sufficient scale to handle almost anything they need.
- They are rumoured to be testing an in-house shipping operation.
- Amazon Prime TV, which is also a distribution platform for digital products.
Realistically, if Amazon gets a solid foothold in this market every other small and medium sized online retail business is dead in the water. A company pursuing a differentiation strategy could probably nip at their heels for a while, selling brands and products that they’re not able to stock. Competing on price would be a non-starter.
A potential advantage to Amazon entering the market is the disruption to the established shipping/delivery companies. If Amazon can deliver goods to most of Australia on the same day and at a very low cost, other retail businesses will demand the same. Shipping suppliers—AusPost, Toll, UPS, etc.—will face significant pressure from their customers to provide a competitive service.
Alibaba–the monolithic Chinese eCommerce company–is rumored to be expanding into Australia too. They will no doubt be unbeatable on price, but China’s reputation for producing “cheap junk” and the nationalistic wariness that Australian consumers have towards Chinese enterprise could be an effective and exploitable Achilles heel.
So can it be done?
The common answer to most of the threats listed in this essay has been “differentiation strategy,” but the reality is that the majority of uncommon products that could be stocked are substitutable with products from established vendors.
Products that are so niche that other vendors don’t stock them face the issue of a very limited potential market. There’s two competitive remedies for this situation that I can think of:
1. Expand the potential market for these products by driving interest in the specific pet they’re applicable to. For example, sell domesticated fox food and then dump money into convincing people that pet foxes are in vogue. As far as business ideas go; this one is outlandish and prohibitively expensive.
2. Keep operational costs to the absolute minimum. Focus on time-consuming organic growth methods, such as directly participating in hobbyist communities, or producing content (blog posts) that can become authoritative in that particular niche.
A more generic strategy that meshes with the need to develop strong brand salience and appeal to a mass-market audience is needed. Basically, sell good quality medium and high end products that every pet owner needs, while also focusing marketing efforts on the more obscure niche products. Use the niche products as “bait” to get customers into the sales funnel and then use followup selling strategies (social media posting, email reminders, content marketing) to get those customers coming back to buy the generic stuff.
The key, that sadly seems to have been skipped over throughout this essay, seems to be marketing. Betamax was superior to VHS but lost because of inferior marketing. Some sort of innovative—perhaps even gimmicky—marketing strategy is needed. Search advertising, content marketing, social media; even traditional advertising. Differentiate here and not in the product range, pricing, or website design.
I really like the idea of product bundles. A bag of dog food, a toy, a worming medication, a packet of treats; all delivered every three months on a recurring basis. I’m sure other brands have already come up with something similar, but it seems like the sort of thing that could be advertised quite easily—especially if they’re made seasonal somehow. Red and green stuff for Christmas, orange at Halloween (throw in a scary dog costume…), pastel with dog-edible chocolate eggs at Easter. Inner-city yuppies would love sharing that nonsense all over their Facebook page.