Blog: Dean BestAmazon causing more waves in FMCG - without an announcement

Dean Best | 17 May 2016

The rise of Amazon and how far the online retail behemoth plans to invest in food is a hot topic throughout many developed markets - and the company is again causing much chatter, this time amid speculation it is set to launch more private-label products.

According to The Wall Street Journal, Amazon is to roll out more own-label products in the coming weeks, a move that will include the group's debut in perishable foods.

The retailer is targeting categories like baby food, spices and nuts, as well as tea, coffee and vitamins. The WSJ said the products will be available to members of Amazon Prime, the retailer's annual membership programme.

The WSJ piece cited unnamed sources. Amazon declined to comment.

When contacted by just-food, the company's UK office said: "We don’t comment on rumour and speculation."

Despite the lack of confirmation from Amazon, the WSJ report prompted a lot of discussion about the retailer and its intentions in food.

Amazon's strength means it is already a key customer for some FMCG manufacturers. On a more tactical level, growing numbers of brands are joining the Amazon Dash order-at-the-touch-of-a-button service in the US.

However, the notion Amazon wants to sell food under its own brands may cause some brows to furrow in the boardrooms of food manufacturers.

Keith Anderson, vice president of strategy and insights at e-commerce consultants Profitero, says Amazon will, if the speculation is accurate, face a challenge in carving out a foothold for its private label, pointing to the retailer's past efforts in the sector. However, Anderson says Amazon has the stamina to push through any early teething troubles.

"As the Elements diaper launch proved, premium private label is hard — especially for high-involvement consumables like food and baby products. People care a lot about what they eat and put on their babies," Anderson says.

"The economics of CPG e-commerce suggest high potential for private label. Just as they do offline, shoppers are looking for value. And Amazon and other online retailers are looking for margin.

"With its third-party marketplace, position as the number one product search engine and premier repository of customer ratings and reviews, Amazon has an amazing insights and analytics engine to drive new product development based on customer demand and preferences.

"The challenge will be in building trust and meeting or exceeding shopper expectations. This is a high-commitment business, and Amazon is comfortable with long-term, high-commitment investments. I don't expect overnight success, but Amazon likely doesn't either."

Given Amazon's reputation for low prices, a deeper move into private label is likely to grab the interest of consumers, although of course a focus on quality will be necessary to secure loyalty.

Coincidentally, research published yesterday by US consultants Boomerang Commerce claimed Target Corp. and Wal-Mart Stores were around 50% cheaper than Amazon on two categories - drinks and breakfast products.

Boomerang Commerce Guru Hariharan said the research suggested Amazon's rivals could capitalise.

"Amazon has cultivated a reputation for being a low-price leader, but Boomerang Commerce’s analysis exposes key opportunities for other retailers to retain their existing customer base and pull new shoppers away from Amazon,” Hariharan said. “This is a significant vulnerability that Amazon’s competitors can exploit right now, particularly in markets where Amazon does not yet have same-day or one-day delivery.”

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