Amazon has finally made its move on the Middle East, a market it says its had its eye on for some time. The US online behemoth has agreed to buy the region’s biggest e-commerce platform, Souq.com for an disclosed price that analysts have estimated to be around US$650 million.
Analysts had valued Souq at more than $1 billion after it raised $275 million from investors last year. The online retailer sells more than 8 million products, mostly to customers in the Gulf countries and Egypt.
“We’ve been serving customers in the Middle East for many years, but this of course allows us to do it in a way that it takes it to a whole new level, that it’s local service, local delivery speed,” said Russ Grandinetti, an Amazon senior vice president.
The deal now gives Amazon direct access to Souq.com’s 75,000 merchants, who sell two million products across 30 categories. The acquisition also gives Amazon access to Souq’s logistics subsidiary, Q-Express with its successful and refined fulfillment operations, an area central to the ethos of Amazon’s successful business. It also gives Amazon access to Souq.com’s Payfort, an online payment gateway that is popular in the region.
Advisory firm AT Kearney said in its GCC e-commerce market study last year that the region has the potential to become the world’s fastest growing online market. With an estimated size of $ 5.3 billion (AED 19.4 billion) in 2015, e-commerce at present contributes only around 0.4 per cent to the region’s GDP. The study also predicted the market could quadruple its value to $20 billion by 2020, if the right enablers were put in place.
Perhaps more importantly, Amazon will now have direct access to a geographic region quite unlike that of the US or Europe. In fact, it is still a small e-commerce market representing two per cent of total retail sales, but, the outlook is great, growing at an estimated 30 per cent a year. With an estimated five million online buyers in the MENA (Middle East/North Africa) region, it is one that is tech-savvy, with a quickly expanding population and one that is highly mobile.
Fadi Ghandour, managing partner at Wamda Capital and founder of logistics firm Aramex, said the acquisition of Souq.com is a massive vote of confidence in the region, and its emerging e-commerce sector.
“This is the final recognition that the technology and digital industry in the region is happening and Amazon is the big statement on this,” Ghandour told Arabian Business. “There is no-one bigger and more capable than Amazon, maybe Ali Baba. Maybe it will get others to pay attention to the region, like we have seen in previous experiences.
“I think you will see a lot more activities and possibly some other consolidations. There are smaller companies, like Namshi for example, who will have to be creative and capable of staying and competing in the market. But it also means that they will also be targets [for acquisition].”
Ghandour is well versed in Amazon’s existing operations in the Middle East, having helped introduce the online retail giant to the region. “My history is in Aramex, and the history of Aramex is introducing Amazon to the region,” he said. “When Amazon started selling in the region, it was through the shop and ship product that Aramex created and eventually it started going directly through Aramex. “
Ghandour said the traditional model of retail will see a shake-up as disruptive e-commerce models start to have a greater influence on retail processes.
“The traditional models could have stayed a bit dormant when Souq was around because Souq did not have the massive and deep pockets that Amazon does. When Amazon comes we will see that traditional models are no longer sustainable.”
On the acquisition which will see Souq.com retain its branding, CEO Ronaldo Mouchawar said: “We feel the opportunity and growth in this part of the world is still massive,” he said. “Online is just 1-2 per cent of what is being purchased. For us culturally as well, Amazon is a great fit for us, and this is why Amazon was our partner and choice.”
When Mouchawar founded Souq 10 years ago with two partners, e-commerce was virtually unknown in the Middle East. The company grew rapidly from five people in Dubai to its current 3,000 employees across the Arab world.