Monday, 20 September 2021

Coffee With… Amazon

What does Amazon have planned for Egypt, now it’s launched officially? This month saw the official launch of Amazon in Egypt, with Amazon.eg replacing Souq.com and customer data migrated onto the new platform. This marks a notable step in Amazon’s regional growth: Egypt is its first outpost in Africa and the largest MENA country it’s physically present in.

We sat down with Ronaldo Mouchawar, vice president of Amazon MENA, and Omar Elsahy, general manager of Amazon Egypt, to talk about the launch, Amazon’s plans for Egypt, and overall growth potential in Egypt’s e-commerce sector.

Below are edited excerpts from our conversation:

Egypt and the MENA region are strategically important for Amazon: “I’m super excited that Amazon finally launched in Egypt. That’s key for us,” says Mouchawar. MENA as a region is quite strategically important, with 400 mn people and multiple countries, he notes.

At least EGP 1 bn went into the Egypt launch: The EGP 1 bn that we previously identified as slated for future investment in Egypt is actually what was invested in getting the launch off the ground, Elsahy confirms. “It mostly went into our fulfilment centers (FCs), and building the readiness to serve customers at the scale we’d like to.”

And while future investment plans remain under wraps, the EGP 1 bn speaks to Amazon’s commitment to Egypt, Elsahy adds. “We do identify Egypt as a very important market segment, and one we need to continue investing in over the course of the next year. And probably many years afterwards.”

IT infrastructure will be one key area of investment: Expanding IT infrastructure is an essential part of supporting the growth of Amazon’s e-commerce systems, says Elsahy. Making processes — whether scanning, weighing and moving items, packing them, or distributing them in a warehouse — more efficient, and trying to better understand what customers want, all involves processing a lot of data, meaning a lot of IT power is needed. But quantifying the investment is difficult. Once certain IT systems are in place, they can be enhanced with incremental investments, he says.

That doesn’t necessarily mean we’ll see Amazon data centers here soon: While Amazon’s FCs require data centers to operate, they don’t necessarily have to be housed in the same country, says Elsahy. Amazon Web Services (AWS), which powers Amazon’s data centers, is separate from the company’s e-commerce operations. As we’ve previously noted, Egypt has aspirations to become a data center hub.

But using tech and machine learning to improve efficiency is definitely on the cards: Machine learning tools will likely be used to refine how addresses are stored and used, to maximize supply chain efficiency, says Mouchawar. “That’s an area where we can innovate — not just in Egypt, but in other countries with similar challenges.” Machine learning can also be used to improve mechanisms like customer search, recommendations, tracking what people are looking for and what they buy, he adds.

Automation is key for Amazon, as for any online business, notes Elsahy. In Egypt, the focus will be on using automation to improve the efficiency of delivery on the road and product storage in FCs. “Just as with the network routings, you can think of the FC as a city in itself. How do you drive efficiency there, or automatically stow products in higher demand in places that allow our teams to be able to pick them up faster?”

So what makes Egypt an appealing market for Amazon? Our size, human capital and young population all offer chances for growth, says Mouchawar. “Egypt is a very large market. It has a growing retail segment, and growing internet usage, with a massive user base.” It also has a wealth of human capital, with lots of young people, he notes. Amazon’s Egypt teams are growing, Mouchawar says. “I think we’re around 3k people right now in Egypt, but I can see us easily scaling that number.” Along with the recently-launched FC, Amazon has a few other in-country tech centers. “Not only does the Egypt team support Egypt business, they also support some of the MENA business in the region.” In time, the team will hopefully support business in Europe, he adds.

Could Egypt be a launchpad for Amazon’s e-commerce expansion in Africa? Not for now. Amazon’s immediate focus is on building its presence in Egypt and consolidating its position in the countries it’s already in, says Mouchawar. “Egypt is our first launch in Africa, and the continent is vast. For now, my focus is making sure a customer in Egypt is satisfied with what we provide.” Many customers in Africa already buy from Amazon sites across the world at the moment, says Mouchawar. “But this one is unique in the sense that we’re on the ground, launching the service.”

For the moment, a major goal is extending its existing SME network across Egypt: Amazon plans to continue developing its “fairly large ecosystem” of SMEs — either retailers or brand manufacturers — who could use the internet to expand their reach within the country, says Mouchawar. “Setting up infrastructure for distribution is challenging for smaller businesses. Through Amazon’s fulfillment network and the 15 hubs we’ve built in Egypt, we should be able to deliver most of their products to any customer within the country within a day or two.” Eventually, these SMEs may be able to tap into Amazon’s global network, as they learn more about e-commerce and improve things like e-marketing and online customer service, he adds.

Working with local Egyptian vendors is a priority, but the focus isn’t necessarily on supporting local manufacturers, says Elsahy. “Whether [items are] locally manufactured, or manufactured abroad is almost agnostic in our thought process. Our job is to bring what’s relevant to the customers.” Local vendor rates — priced according to local earning power and market maturity — in some cases went down after the migration from Souq to Amazon, he adds.

And for now, Amazon is keeping certain payment services in place: Payment is still a challenge, because Egypt has a fairly large unbanked population, notes Mouchawar. So in the short term, Amazon.eg will allow for cash on delivery. “But we’ve seen all over the world, as the business matures and trust in the service improves, cash on delivery reduces over time. Paying online is a lot more convenient.”

But amid all this activity, the launch hasn’t necessarily been an unqualified success for all customers. Since the Amazon.eg launch, some complaints have circulated online about the new service. These include complaints of high shipping fees, customers receiving badly damaged products, difficulties with returns, and service delays.

Amazon’s response? Surging demand may have impacted delivery capacity, but operational processes are being refined, says Elsahy. “We’re sorry that some customers may have temporarily experienced issues while shopping recently,” says Elsahy, who characterizes the overall customer response post-launch as “overwhelmingly positive.” Efforts to expand capacity and increase the delivery network have led to surging demand since the launch, he says. “Therefore delivery options might vary by item and delivery area. We’ll continue to ensure our operations processes are enhanced to resolve any issues as they arise.” Representatives are reaching out to anyone who’s made the company aware of problems, he adds.

Overall, Egypt’s e-commerce sector still has lots of room for growth: Egypt’s e-commerce sector is worth about EGP 40 bn, Elsahy says, quoting recent Internal Trade Development Authority (ITDA) estimates. “It’s relatively decent, but still has a lot of room to grow. We feel it’s very under-indexed in terms of its potential, and that’s why we’re making all these investments.”

Government investment in areas like digitization and financial inclusion will keep driving e-commerce growth, Elsahy believes. “I think the government’s actually doing a great job in terms of investments around different sectors to support the ecosystem.” This includes automation, online payments, and digitization, he says.

Some regional insights from Ronaldo Mouchawar:

  • E-commerce is growing in MENA as a whole, at an annual rate of some 30-40%.
  • This is being driven by high mobile internet penetration, the adoption of digital tools, and young populations who see e-commerce as an essential service.
  • Being able to compare product specs and see customer product reviews also builds trust, so that’s helping to overcome initial hesitancy seen in the region.
  • Covid-19 also drove businesses online and pushed customers to shop online. Customers are now looking to Amazon to purchase items they wouldn’t have thought of pre-covid, because of convenience.

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