“The food space is getting fun with the return of Wild Oats and Private Label food from Amazon. Is Amazon-branded groceries on the way? Their new job posts hint at a possibility”
Even AllThingsD felt compelled to address amazon expanding its own private label offering to supermarket goods (actually they don’t know the industry term is CPG for Consumer Packaged Goods)
Private Label (Store Brands) Growing Across All Channels
The Private Label Manufacturers Association says Store Brands are Growing Across All Channels. According to the PLMA “Among the country's supermarkets, store brands experienced a record year for annual sales in 2012. (for 2012) Sales totaled $59 billion and with a private label unit share of 23.1% and dollar share of 19.1%”. Additionally they point to this “Looking beyond traditional supermarket outlets… no-frills retailer Aldi and Costco Wholesale, specialty chains like Whole Foods and Trader Joe's, as well as convenience stores… likely produce a grand total in store brand sales of more than $120 billion.”
If you live by a Trader Joe’s, you are seeing a small footprint limited assortment format retailer built around selling a majority of foods carrying the chain’s own branding.
Amazon Dominates E-Commerce
Amazon continues to dominate e-commerce, 2012 figures are $61 Billion Annually. Anecdotally I hear from many friends and colleagues that Amazon is becoming the first stop for their shopping needs. Even diapers! That’s right, Amazon purchased Diapers.com to be a mom’s easy choice for shopping. Why?
Well think this way… if you have children you know that diapers are not heavy… but they are bulky and you use a lot! Just perfect for Amazon. Wait! Amazon is now planning on setting up fulfillment centers in Procter & Gambles facilities to get you more P&G products really fast… even same day delivery. And don't ignore Amazon Fresh either!
So let’s get back to food. Amazon has a great brand but can that brand umbrella be extended to private label foods? So I asked Steve for some deeper insight here.
Steve, What do you see happening in CPG retail that is driving Amazon to emulate what supermarkets are doing today to drive sales with their own products?
Answer: Amazon is first and foremost looking for the “Last Mile Solution”. They are looking for the most efficient way to deliver products, selling and delivering fresh food places them in neighborhoods daily. More important companies the ilk of Safeway, Publix, and Marsh continue to focus on legacy metrics like slotting fees and “basket size” while consumers are interested in fresh prepared Ready-2-Eat and Heat-N-Eat meal options. Amazon’s goal of garnering 2.5% grocery market share may not be so difficult when they add private label products.
Retailers like Trader Joes, have built their business on Private Brand. However TJ has a focus on products that are unique and do not have a national brand equivalent. Do you really think Amazon can move in this direction OR do you see them basically knocking off National Brands with me too items?
Answer: Wild Oats is about to begin giving Trader Joe’s a run for their money with small footprint print “better for you” private label food. Amazon has had success with a global footprint. Amazon’s ability to cull from the best of the best around the world and sell into the melting pot that is the United States will be powerful.
I am not clear how their Private Brand will help drive Amazon. So what am I missing?
Answer: Margins will provide cover for both competitive pricing and brand relevance. The Halo of good will from loyal Amazon prime members can’t be discounted or under estimated.
Going back to Trader Joes, many of their Private Brand partners are smaller innovative food manufacturers… so there is an open door for the “little guy”. Do you see the same opportunity for smaller food brands to have a new opportunity with Amazon that is missing in the bricks and mortar retail grocers?
Answer: Amazon has a network of local and small retailers all offering products today. With the development of new Amazon distribution warehouse all around the country the ability to stock local will be much easier than you think.
So How Do You Sell Food to Amazon?
The Strong Growth In Private Label Brands suggests that food entrepreneurs either develop strategies to avoid losing shelf space to store brands or consider creating private brand offerings. Additionally read Steve’s article on How Amazon Selects Food Vendors… you may be surprised to learn just how focused they are on delivering your next meal.