Should the Amazon/Whole Foods merger worry national brands?
Through a special arrangement, presented here for discussion is a summary of a current article from the monthly e-zine, CPGmatters.
For consumer packaged goods national brands, the biggest potential reverberation of the Whole Foods sale is whether it helps Amazon.com solve the challenges of delivering groceries to end consumers.
Once it has a physical-retail base, Amazon could further leverage its negotiating expertise and combined scale to push for still-lower prices.
In response, Ken Harris, managing director of Cadent Consulting, said brands “must figure out what they mean to consumers both in bricks and mortar and online, and cultivate that.” He told CPGmatters, “The good ones will double down on brands and brand building with Amazon or without Amazon.”
James Thomson, a former senior manager in business development at Amazon and now partner at brand consultancy Buy Box Experts, believes brands “must figure out how to get much more nimble.”
“If I’m a national CPG and I want to launch a new brand, it’ll still take me a year to 16 months,” Mr. Thomson said. “If I’m Amazon, I’ll get the product launched in 60 days, on a small scale after a couple of experiments. National brands are going to have to do that, too.”
Some question Amazon’s ability to establish private labels in the grocery space. Amazon’s own diaper line, for instance, hasn’t gained much traction against the category leaders, Pampers or Huggies.
Mr. Thomson warned not to underestimate what Amazon might be able to do through its digital wizardry and the benefits that gaining offline consumer data may provide in fine-tuning product development. He said, “Because Amazon doesn’t have the same profit requirement as most companies, they could build a private label product that could wipe out a national brand.”
One win for Amazon has been its Basic private label battery brand, which sells for 20 to 30 percent less than the national brands.
“And that could happen to any brand at all in the grocery space,” Mr. Thomson said. “Amazon CEO Jeff Bezos says, ‘Your profit is my opportunity.’ And if he believes some grocery brands are too profitable, Amazon will find a way to fill that need with a cheaper product that it builds itself.”
DISCUSSION QUESTIONS: How should national CPG brands respond to Amazon’s acquisition of Whole Foods? Do you see Amazon relying more heavily on developing its own private labels to capture the CPG opportunity than other retailers in the grocery space?