By Anna Koper and Michael Kahn
WARSAW/PRAGUE (Reuters) - Amazon (NASDAQ:AMZN) and Temu are taking different tacks to challenge Poland's online marketplace leader Allegro, with the U.S. e-commerce giant leaning into video and the fashion-focused Chinese company relying on low prices to win customers.
The two retailers see opportunities in Central and Eastern Europe's biggest economy and the region as a whole, where growth rates are set to outpace those of more mature Western markets as incomes rise and more shoppers move online.
Amazon plans to add more original Polish-language shows to the five it has launched on its Prime Video service since 2023, its country manager for Germany, Austria, Switzerland and expansion markets Rocco Braeuniger told Reuters.
"Where we have seen a good response was Prime Video and we will double down on this," he said. "We will invest in Prime Video and local productions within the region."
Amazon's documentary about soccer star Robert Lewandowski is its most-watched title ever in Poland.
Amazon Prime, which includes video-streaming alongside other services, costs 49 zlotys a year in Poland. Most Polish subscribers use the video benefit, which the company sees as key to attracting and keeping users, Braeuniger said.
Amazon, whose Alexa voice-assistant software was developed at its technology centre in the Polish city of Gdansk, also plans to invest more across the region, including in logistics.
"We see a tremendous growth potential in CEE," Braeuniger said.
ROOM TO GROW
Industry bodies EuroCommerce and Ecommerce Europe recently valued the overall European online market at 900 billion euros ($975 billion), of which 67% was in Western Europe.
Central and Eastern European countries accounted for just 8% and 2% of total turnover respectively, leaving plenty of room for growth.
Online marketplace sales in Poland, with nearly 40 million people, are dominated by Allegro, which was founded in 1999 and made its debut on the Warsaw stock exchange in 2020.
Amazon entered the Polish market in 2021.
China's Temu - owned by PDD Holdings - followed in 2023 and quickly gobbled up market share to lap Amazon with low-cost fashion offerings that have helped make the discounter into a global e-commerce behemoth.
"We have received encouraging feedback from consumers in the CEE region," Temu said in a statement.
In February, Amazon had almost 5.9 million users in Poland, lagging far behind Allegro, with 18.2 million, and Temu's 13.7 million, according to Mediapanel Gemius Polska and PBI data quoted by news agency PAP Biznes.
Pawel Szpigiel, an analyst at DM mBank, said Allegro's loyal customer base and wide range of services made it a tough market leader to unseat but that Amazon's ability to build slowly and Temu's capacity to compete on prices posed a potential threat.
"Allegro definitely can't sleep peacefully because the e-commerce market is very dynamic, as evidenced by the success of Temu around the world," Szpigiel said.
"Amazon's strategy is different and has always been different from that of Chinese companies," he added. "Amazon has a strategy of very long trench warfare."
CLOSE TO CUSTOMERS
Proximity to its customers has helped Allegro defend its leading position in Poland and push its flagship brand into the neighbouring Czech Republic in 2023 and Slovakia this year, Chief Financial Officer Jon Eastick told Reuters.
The company - which operates in six countries following the acquisition of Mall.CZ - plans to launch the Allegro brand in Croatia, Hungary and Slovenia in 2024.
"Our strength, especially in a place like the Czech Republic or Slovakia, is that they're adjacent markets to Poland," Eastick said. "The Polish merchant offering is not a perfect match for tastes in those countries, but it's pretty close."
But competing against deep-pocketed Amazon could weigh. Trigon analyst Dominik Niszcz forecasts that Allegro's 2024 adjusted EBITDA loss from international operations could top 500 million zlotys, depending on expenses in the fourth quarter related to entering the Hungarian market.
Another challenge in the region has been inflation, which has ranked among the highest in the European Union and pushed consumers to keep a tighter grip on their spending.
Poland's annual inflation in peaked at 18.4% in February 2023 and has since eased to 1.9%, although analysts expect it to tick up again due to the government scrapping the zero value-added tax rate on food and potentially unfreezing energy prices.
Some analysts also point to Poland's relatively low household savings rate, saying private consumption could recover more slowly if households opt to first rebuild their savings cushion, something Allegro's Eastick also identified as a risk.
"The recovery (in consumption) seems to be coming a bit slower than the economists expect. So we're cautious from that perspective," Eastick said.
Nevertheless, "this year we will also be in a good position to benefit from the move back towards discretionary spending", he added.
($1 = 0.9230 euros)