Allegro vs Amazon. Clash in the Valley of the Falcons

The long-awaited news was made public last week - Amazon officially announced its entry into Poland as a sales platform. Amazon has been preparing for this move for years, building its infrastructure in Poland; however, from the Giant's perspective, it is not a strategic decision in terms of the overall business.

On the other hand, for Polish Allegro, this is a very serious threat that it has been preparing for years. Without demonising the power of Amazon and without downplaying Allegro's position in Poland, the analogy that immediately comes to mind is that this is a prelude to the biblical battle of David against Goliath in the valley of Soko. Is Amazon too confident in its position? Can Allegro win this battle by relying on its business savvy and market knowledge, and finally, how will the battlefield look after it's over? History tends to repeat itself, but will it be the case this time? Is effective sales on Amazon possible?

First, the battlefield - the market!

The Polish e-commerce market is a juicy target for Amazon. With a population of 38 million people, an e-commerce value of 22 billion EUR, and double-digit year-on-year growth, this is a promising market. From a broader European perspective, the Polish e-commerce market is "only" 26% of what is in Germany or just under 10% of the e-sales value in the UK. One could automatically raise the predominant argument about comparing the Polish market with those of Western Europe - the Western markets are more mature, stable, with a steady, albeit lower, growth dynamic. Nothing could be further from the truth. The pace and pattern of growth does not have its own "meter", and new tactics are determined by changing social habits and accelerators, such as COVID-19. British e-commerce grew by nearly 15% in 2019, while French e-commerce grew by about 11%. E-business does not yet have its own patterns, a defined pace, or models.

For Allegro, Poland is the most important and, in fact, the only market. Clumsy attempts to enter the German or Czech market have ended in failure. However, in Poland, it has successfully maintained a position of leader, accounting for nearly 65% of Polish e-commerce in 2020, according to a Gemius report. This is undoubtedly an excellent result and a strategically advantageous position for the upcoming showdown. However, Amazon previously set up its camp in Poland and prepared for the showdown, but it does not approach Poland as a strategic direction per se, rather as another foothold in the expansion of its multi-level empire.

Secondly - an overview of Amazon's strategy.

When Francois Nuyts became CEO of Allegro in August 2018, it became clear that the coming years would be dedicated to preparing for Amazon's entry into Poland. Francois Nuyts had, for nearly 7 years before Allegro, led Amazon's business in Italy and Spain. For Allegro, this was a good decision, leading to a series of positive changes:

• Allegro Smart

• Streamlining sales (communication between buyers and sellers via inmail)

• Expanding delivery and order pick-up options

• Working on search quality

• Significant increase in employment from 1,500 in 2018 to 2,400 in 2020, many of whom are in AI and machine learning departments

  
  

Further requirements and constraints for sellers that have improved the quality of buyer service.

Allegro's development in recent years has focused on further strengthening its market position, broader outreach, and tools for sellers and customers. These measures have yielded the desired effects, but there was nothing spectacular or innovative in them; rather, it was a duplication of existing market solutions. Allegro Smart, the flagship program of Allegro, is a heavily stripped-down version of Amazon Prime or Ebayplus. Allegro is still in its infancy, even with the Same day delivery program, not implementing or investing significantly in its own logistics solutions, Last Mile delivery, or its own pick-up points. The partnership with InPost has certainly brought many benefits for buyers, sellers, and InPost itself, but perhaps least for Allegro itself. InPost, after a successful debut on the Amsterdam Stock Exchange (well done, Rafał Brzoska) and with raised investment capital, a broad network of parcel lockers, courier services, and active R&D, is becoming a partner for Amazon, with which it has already signed a contract. In this way, Allegro has practically surrendered the logistics battlefield, and this is one of the most important drivers of current e-commerce.

Amazon significantly outpaces Allegro in this regard. With a dozen logistics centers in Western European countries, ten of which are already in Poland, it offers enormous opportunities for reaching and scaling sellers' businesses. Companies that are not ready for operational B2C customer service can take advantage of the Amazon FBA program, placing their products in Amazon warehouses, thereby outsourcing outbound logistics, including cross-border - Amazon. The invoicing process for individual orders can also be outsourced to Amazon (free of charge), and it can even assist with VAT accounting in specific countries. Such solutions were not needed by Allegro, which operates almost exclusively in the domestic market.

For Amazon, Poland is not, however, an end in itself. Poland already serves as an efficient link in the supply chain for customers in DACH countries but, more importantly, will become Amazon's foothold for further geographical expansion into the markets of Lithuania, Latvia, Czech Republic, Slovakia, and possibly Hungary and Ukraine. Of course, the more effectively it manages to enter the Polish market, the easier further development will be. Despite the fact that the platform itself appears opaque and perhaps even outdated in terms of "UX", the values for buyers, safety, breadth of the product offer, pricing policy, and logistics that Amazon possesses are impressive and provide it with a strategic advantage not only over Allegro but over most existing e-commerces.

Thirdly - an overview of the arsenal.

With spontaneous brand recognition at 86% in 2020 and 20 million monthly visits, Allegro's position in the domestic market is decidedly stable and well-established. In terms of solutions beyond the platform itself, the Allegro group also includes the most popular Polish price comparison site Ceneo.pl, which additionally aggregates traffic and data for Allegro.

In this respect, Amazon shows its true face as a business behemoth. Allegro's asset level at the end of Q3 2020 was approximately 1.4% of Amazon's asset value, and the market cap difference between Allegro and Amazon is 98.7%. A wide network of "Amazon FC" warehouses, self-owned product sales in a distribution model, over 100 of its own private label products, Amazon Video, over 500,000 employees, internal and last-mile logistics, and many satellite businesses, including Amazon Web Services, which delivers record profits year-on-year, allow for the growth of other business lines and provide them with top-level technological support - this is a brief overview of Amazon's weaponry. Overwhelming.

Fourthly - morale!

Looking solely at the Polish market, Allegro definitely has an advantage over Amazon. Allegro is widely recognized in the minds of individual customers, and for thousands of trading and manufacturing companies, it is one of the sales channels and has recently been widely discussed in the context of its successful entry into the Warsaw Stock Exchange and joining the WIG20 index.

Allergo was a precursor of e-commerce in Poland. It grew organically in Poland alongside the rise of e-commerce awareness in the country, adapting to user demands and creating opportunities for sellers. One can argue about Allegro’s limited expansion activity, but its position as the unquestionable leader in the domestic market cannot be taken away from them.

Amazon, on the other hand, is a relatively unknown e-commerce platform for the average Polish user and is often viewed solely through the lens of the FBA warehouses scattered across Poland. Selling on Amazon can also initially present slight challenges. Communicating and embedding the value of Amazon in users' consciousness may take months or years. Factors that could easily reach Polish users and dethrone Allegro's advantages are breadth of the offer and pricing. The offer on Amazon.pl will aggregate products from sellers not only from Poland but from across Europe and beyond. Finding a niche book in English will no longer be a problem, and accessories for the latest smartphone will be available from the day of its global premiere. Additionally, prices are often lower than those offered in Poland, thanks to the organised product offering by EAN codes, price monitoring by Amazon, and Amazon's own sales through the Amazon Vendor Central program.

Battle Amazon vs Allegro

The comparison of Allegro and Amazon in the Polish market to the battle of Goliath against David may be considered blasphemous, but it captures the atmosphere that has developed around Amazon.pl and Allegro. Both platforms are now in the process of calling for a duel and sowing PR.

Amazon has the backing of global experience, a very large pool of financial and human resources, logistics at the highest level, partly already established in Poland, a well-communicated customer care policy, and spectacular R&D.

Allegro has a leading position, loyal customers, and wide reach. Will that be enough to knock out Amazon with one blow? Probably not.

The clash between Amazon and Allegro will likely not be a spectacular showdown of titans but a long, grueling battle for the market, categories, segments, and shares - to the "bleeding out" or market abandonment by one of them. One thing is certain, an interesting time is ahead.