Amazon, Allegro and InPost: the battle for Poland’s untapped e-commerce market

By Maria Wilczek

As the first snows fell in Poland this weekend, a long line of undeterred shoppers stood outside an IKEA store in Warsaw. Elsewhere, a cluster of a hundred people pushed against the front of Primark, as security guards ushered in the permitted one person per 15 square metres. CCC, the largest shoe retailer in Central Europe, boasted about its highest ever sales on Saturday.

As soon as stores in Poland re-opened this weekend, after three weeks of government-imposed shutdown, enthusiastic crowds in facemasks rushed to rummage through belated Black Friday sales.

It is a sign of how devoted Poles, who have been relatively slow to join the e-commerce revolution, remain to brick-and-mortar shops. But the pandemic has pushed many home-bound shoppers online, and the untapped potential of Poland’s large market is now being eyed by a number of homegrown and global players.

The country’s largest online marketplace, Allegro, may soon face competition from the global hegemon, Amazon, which is rumoured to be readying for market entry. To defend its home turf, Allegro – which made the largest stock market entry in Europe this year – on Thursday announced that it would be piloting its own parcel lockers as part of a comprehensive delivery network.

That appears to end earlier speculation that Allegro would buy InPost, the unrivalled local provider of parcel lockers. InPost itself, meanwhile, may soon go up for sale, with private equity shops already circling. Other companies are also jumping on the bandwagon. On Monday, Orlen, Poland’s largest petrol retailer, said it would also be erecting a network of 2,000 parcel lockers soon too.

The battle over Polish shoppers and sellers may breathe life into Poland’s budding e-commerce market. In the end, much will come down to who can offer the speediest and cheapest delivery. As Allegro and Amazon prepare for a showdown, InPost may end up a kingmaker.

A delayed online revolution

Despite being one of the fastest-growing economies in the EU, as well as a leader in digital payments, Poland’s e-commerce market remains small.

The country has a growing middle class of potential customers. Many, however, are older and have limited online literacy. “This constrains growth,” notes Ignacy Święcicki, digital economy team leader at the Polish Economic Institute (PIE), a think tank. “Without widening online access to close the digital divide, e-commerce will not reach many of its potential customers.”

According to official data, just 5.6% of Polish retail was happening online at the start of 2020. With the onset of the pandemic, and with Poland implementing one of Europe’s earliest and toughest lockdowns, this figure shot up to 8.1% in March and 11.6% in April. It then, however, dipped back down to around 7% as coronavirus restrictions eased.

“The pandemic was an impulse strengthening the market, but it has not derailed the previous trend [of slow growth],” Święcicki told Notes from Poland. For comparison, the UK’s share of online retail has jumped from 20% to 28% this year.

Poles are, however, increasingly drawn to the conveniences of online retail. A new survey by Kantar finds that almost three-quarters of Poles will buy some of their Christmas presents online this year. Many say they will visit stores to inspect products beforehand, but ultimately browse second opinions and look for the best prices online.

Who controls the lockers, controls the market

The pandemic has given a shot in the arm of online shopping. It has also vindicated the business model of InPost, which operates automatic lockers for customers to collect purchases from an array of sellers, including Allegro, Alibaba, Amazon and, as of last week, IKEA.

The company’s proprietary devices – unmanned, usually outdoors, and fitted with intuitive user screens – have been able to work through weekends, at nights, and even when the tightest of coronavirus restrictions ordered shops and post offices to close.

On top of the convenience of not waiting for a courier, another driver of their popularity has been “[low] prices and cooperation with Allegro to create the ‘Allegro Smart’ membership”, allowing unlimited free deliveries, according to Marcin Michalski, an online sales expert and board member at Cube Group, a marketing company.

Only a few years ago, InPost was on the brink of bankruptcy, but now it is thriving. In September, the company was setting up new lockers at a rate of 10 per day, growing their total number by 50% since last year.

It has over 9,000 lockers and is expanding into smaller towns and rural areas. It delivers to 16 of the largest cities, 69 smaller cities (of 50-200 thousand residents), 866 towns, and 1,823 villages, reports Gazeta Wyborcza. It is now looking to start setting up indoor machines.

Competitors have struggled to emulate inPost’s success. Poczta Polska, the state-owned postal service, is looking to expand its own network of parcel lockers located near post stations and public institutions, in housing compounds and shopping malls, as well as on church grounds.

Even with that blessing, the company only operates 240 such lockers. It is also dependant on technology leased from Danish company SwipBox and shares many of them with DHL and DPD parcel delivery services. Moreover, these machines are mainly housed in discount stores and can only be operated when the shops are open.

Other players, like Coolomat, which provided chilled lockers for grocery shopping pick-ups, have also been pushed to the peripheries of the market after InPost set up its own network of chilled “lodówkomat” (fridge-o-mat) lockers in 2018.

Now Orlen, the state-owned oil giant, has also said it wants to expand the current parcel pick-up service at its petrol-station counters by adding an automated parcel locker service.

“We have started the process of selecting a company that will do this for us,” said CEO Daniel Obajtek on Monday. The company plans to erect 2,000 lockers over the next two years, reports Business Insider.

Now, Allegro, which controls 40% of the Polish e-commerce market and currently also relies on InPost for its locker deliveries, says it will be piloting its own delivery model. “We have identified [this] as one of our tactical developments,” Jon Eastick, the company’s CFO, told Reuters on Thursday.

In September the company had extended its parcel delivery cooperation with InPost for another seven years. Earlier speculation in Polish media suggested that it was even considering buying InPost, which is expected to go on sale next year with a hefty speculated price tag of €2 billion, reports Bloomberg.

“I would treat Allegro’s pilot of creating their own lockers for parcel collection as a negotiation move in the fight to buy InPost,” said Michalski. He believes Allegro would not manage “to build an alternative distribution network in so little time, and the costs could end up greater than the price of buying InPost.”

“A serious threat for Allegro would be a take-over of InPost by Amazon,” which according to Michalski is conceivable as part of the American giant’s “expansion strategy into European markets”.

“Whoever controls InPost, will exert a large influence over the market,” Święcicki added. “If any other player were to buy it, that would put Allegro in a difficult spot. Control over all parts of the process is a key element of the e-commerce business model,” especially as the speed and quality of delivery become an area of competition between online retailers.

InPost was founded in 2006 by Rafał Brzoska, who at the time promised to build “a Polish Nokia in e-commerce”. But the company overinvested in overseas expansion, forcing it to scale back and sell off assets to stay afloat.

As its debt spiralled to170 million zloty (€38 million), it needed a bailout. In 2017, help came from AI Prime backed by Advent International, a private equity company, which took InPost off the Warsaw Stock Exchange for 320 million zloty (€71 million) and invested hundreds of millions of zloty more into its development. Now, it is looking to collect on its investment.

A Prime market shake-up

InPost’s expansion this year may already be anticipating the entry of another large client: Amazon. “A company like Amazon will need someone who will be able to serve them well in this country,” Brzoska said in September.

The American e-commerce giant already has nine fulfilment centres in Poland, which it uses to serve other markets. It also has a Technology Development Centre in Gdańsk and an Amazon Web Services branch in Warsaw.

Yet until now it has not directly served Polish consumers, who have had to order using a Polish-language version of Amazon’s German website. That may be about to change, with growing signs that the e-commerce giant may be looking to launch a platform in Poland.

The company has already laid some further groundwork, by allowing payments through BLIK, a popular digital payments system, and deliveries to InPost parcel lockers. It is also expanding its local workforce. In October Amazon announced that it would be adding 2,000 full-time positions and 10,000 seasonal jobs to its local workforce of 18,000.

In February Gazeta Wyborcza reported on “advanced talks” between Amazon and Poczta Polska, which would reportedly carry out delivery of products from a Polish version of the Amazon website, also serving customers in neighbouring Ukraine.

“Almost everyone is afraid of Amazon’s entry. On the one hand, it will mean greater competition for regular online stores, as a result of opening our market to global sellers and producers. On the other hand, it will also come with even higher seller fees and service costs than on Allegro,” said Michalski.

However, as Amazon makes moves to enter the Polish market, it will be up against two other e-commerce giants: the homegrown Allegro and Chinese Alibaba’s service AliExpress, currently the most popular foreign retail platform in Poland.

“What is unique about Poland’s e-commerce market is its structure. Allegro has up to 40% market share, which is much larger than the share of dominant platforms in other neighbouring markets,” says Święcicki.

In a tour de force, Allegro became the largest player on the Warsaw Stock Exchange when it listed in October. The equity market debut was Europe’s largest this year and Poland’s biggest ever.

The company is now capitalized at 77 billion zloty (€17 billion) and is roughly twice the size of Poland’s largest bank, PKO BP, and almost 3.5 times the size of Orlen.

With over two decades of experience on the Polish market, Allegro now has 12.3 million buyers and 117,000 merchants. Last year, the company made a net profit of 399 million zloty, which marked a 73% rise relative to 2018, reports Reuters.

The government’s decision to close shopping centres this month had only made the company more bullish. During its Thursday report on third-quarter results, it expressed hope to increase its gross merchandise value by just over half for the full year. Stocks suggest that the market was expecting even more.

“The secrets of Allegro’s successes are, firstly, a brand that has amassed the trust of its users. Secondly, it has lower delivery costs thanks to ‘Allegro Smart’, and thirdly, a huge group of sellers,” said Michalski.

“Amazon has a brand but has not yet established trust. If it provides a good shipping subsidy program, it may also attract the best sellers,” explained Michalski. “I would expect most competition on marketplace quality and customer service.”

Amazon will also have to reckon with Alibaba, which entered the Polish market in 2016. While Amazon flaunts a wider range of products and quicker delivery, the Chinese platform offers competitively low prices.

As a result, the market is segregating. “If someone buys through AliExpress, they know that they are not getting the same quality of products, nor customer service or rights to file a complaint, as with Allegro,” says Święcicki. That would leave Amazon and Allegro as head-to-head rivals, with InPost holding a lot of sway.

Main image credit: Kgbo/Wikimedia commons (under CC BY-SA 4.0)

Maria Wilczek

Maria Wilczek is deputy editor of Notes from Poland. She is a regular writer for The Times, The Economist and Al Jazeera English, and has also featured in Foreign Policy, Politico Europe, The Spectator and Gazeta Wyborcza.