Will Amazon.com become the king of private label?
Private labels are not new to Amazon.com. The company has achieved a number of high profile successes and a few failures along the way. Now, comes a Wall Street Journal report that claims the e-tailer is preparing the launch of multiple private label lines across a wide variety of product categories within weeks. Will the new lines be game changers in and of themselves or just small pieces in Amazon’s strategy to become an indispensable fixture in the daily lives of American consumers?
According to the Journal, Amazon will begin launching the new private food and household product brands, with names including Happy Belly, Mama Bear, Presto! and Wickedly Prime, later this month or in early June. At least initially, Amazon will restrict the sale of its new own labels to Prime members.
If handled properly, Amazon could use private label staples as a means to reinforce its reputation for quality and low prices at the same time. Private labels, if managed in a similar fashion like other food, drug and mass retailers, could help the e-tailer offset some of the losses associated with the delivery of groceries to customers.
Amazon declined to comment on the report.
- Amazon to Expand Private-Label Offerings – From Food to Diapers – The Wall Street Journal
- Amazon is going to sell its own lines of food, detergent and diapers, and it’s going to be a really big deal – Re/code
- Amazon will reportedly sell its own private-label groceries – TechCrunch
- Can Amazon dominate apparel with its own private labels? – RetailWire
- Will an Amazon private label diaper prosper under a new name? – RetailWire
Image source: amazon.com
Discussion Questions
DISCUSSION QUESTIONS: Do you expect Amazon.com to become a private label force in food, household and other staples? How will a successful private label program affect Amazon’s delivery of groceries and related products to consumers’ homes?
Poll
BrainTrust
Charles Whiteman
SVP, Client Services, MotionPoint
Laura Davis
Founder, Branded Ground
Amazon’s expected move into private label lines is consistent with its recent strategy of developing in-house products and brands, such as the Echo and original video content. With its own private label lines, Amazon gains control of product attributes, pricing, and market positioning. It could follow the success of Costco’s “Kirkland” brand, which is preferred by many shoppers over national brands. This move would strengthen Amazon’s position in the grocery market and add incentives for shoppers to participate in the Amazon Prime program.
Amazon is moving ahead with a stronger (and perhaps more profitable) extension of their branding and business. It is no secret that private label programs usually offer greater sales, increased profits, and a better share of market for the retailer. Amazon’s efficiencies with logistics should only make this an even greater cash cow. Perhaps the better question here is why did it take Amazon so long to grow their private label program?
Amazon will test the private label goods with Prime members, many of whom are more affluent and don’t have as much price sensitivity as other shoppers. Once they get the products right, and perhaps collect some positive user comments, my guess is that they might use good reviews as a hook to attract new Prime members and become even more penetrated in U.S. households as a trusted supplier that can save money to offset the membership costs.
That is a big deal and could be a huge blow to retailers all over the U.S. And look out for when the digital-only Gen Zers start to use it. Explosive growth potential is not far away!
I think the key for Amazon in grocery categories would be to focus on the upper tier and not look for customers on the value end similar to what Trader Joe’s does, Whole Foods with its 365 line, etc.
This is absolutely a positive move for Amazon. Private label creates numerous opportunities — greater profitability and market share growth to name just a few. Providing they carry the right items and offer good quality, this should be nothing but positive for Amazon.
Positive wake up for the Amazon’s management. But they are late to the game. They will be another PLM in many areas — but getting to a major force with a single channel is not going to be easy. Kroger and Walmart alone can and will make this effort tough, H&M already beats their apparel attempt. Keep Amazon hunting for new ways to lose money. It would be smarter to simplify the MUSIC space and increase the quality of their resellers.
Count me as a huge Amazon supporter — but just a bit skeptical on private label food and staples from Prime. Echo (yep, got one) and video/music are tech products supported by Amazon’s tech image. Food a la Kirkland/Costco? Not so much. I never discount Amazon. But I have a real “wait and see” attitude on this one. As a long-time Prime member I will be finding out very soon.
I’m not sure. Walmart has not done well with its private label food and staples, but perhaps Amazon will have better luck.
It’s pretty clear that there’s risk in betting against Amazon and given their loyal customer base — starting with Prime members — they have a built-in advantage, even with private label. There are numerous ways they can add value to what they are creating and do so in a profitable and mutually beneficial way.
Phil – I agree on betting against Amazon and its loyal Prime members. The site has become the de facto shopping search site in our household and I know from speaking with many others that we’re not alone in this regard.
I expect Amazon will follow the same “bowling pin” strategy that has been successful for them … pick a category and dominate it. Consumers will decide if the quality and price point will make private label from Amazon successful.
This makes sense. Amazon has one of the best distribution systems. And they know what sells and doesn’t sell, based on sales data. It was just a matter of time before they private labeled product.
A good move for Amazon. From the start, it will be able to provide enough volume to private label manufacturers to get good pricing and service. It has a good database and analytic capabilities, and a well-known and -liked name. Unless Amazon screws up on quality — and I would think it’s learned its lesson there — they should do well with this.
Innovating to reward Amazon Prime members is smart. Amazon clearly knows the value of this ecommerce loyalty program and the success of it is notable, with 74% of members using Prime more today than when they first joined and 49% spending over $800 annually. Why not offer exclusive private label food and household products to these brand affectionados?
Even better, Amazon can troll their data to predict flavor trends for Wickedly Prime snack foods or favorite scents for Mama Bear baby products.
Now, these products become experiential and sensory, building an even stronger bond with users. Best part, these products are exclusive. So more shoppers will join for the privilege of trying them. Oh, Amazon is smart. I like what they are up to here.
Brilliant strategy!
First you establish the infrastructure, systems and processes to redefine retail online and build trust with the consumer. Second, you gain mega mind-share by scaling the business with expansion from the primary category to nearly all retail categories. Third, you continue to invest heavily into the consumer-facing technologies to build a moat around the business model.
And now, you take a lesson from main street retailing to bring private label into the picture so you can improve margins and plow back into the business to create an even more efficient end-to-end, pantry-driven, consumer-centric model.
Natural move for Amazon — their Prime members are their most loyal clients. On the other hand, success with Prime Members doesn’t guarantee success with less loyal customers.
I love Mohamed’s response, as it hones in on one of the most powerful weapons that these folks have: trust. If the price is right, the world knows that the logistics is going to be spot on. Amazon “keeps on giving” with every new product and service evolution — why wouldn’t they also get private label right?
Will the world’s largest, dominant retailer, also dominate the private label business? Of course that first condition has not yet arrived, but it does seem likely at some point.
Kirkland brand was not built in a day and certainly was not built simply because Costco’s name was behind it. To have a successful private label you must first demonstrate quality. This takes time.
All bets are off for now. Let’s see what they bring to market then I can give you my 2 cents.
This is quintessential Amazon. They’ve pushed retail margins to zero with investors who value market share over short-term profit. Given their scale, they can now go after branded manufacturer margins — all according to the Bezos master plan.
A robust private label strategy signals Amazon’s continued maturation in dominating so much of e-commerce. Household items and staples will be met with the lowest degree of resistance. Over time, food could do well, provided they get it right with quality. Costco, Publix, CVSHealth and the like have the advantage of consumer trust around private label, at least for now.
By offering its own private label, which will be seen as an Amazon product, it is taking some risk. Failure in private label could erode the larger Amazon brand a little. If its private label products are perceived as good, that would speed the commoditization of competing branded CPG products — not a positive for grocery or CPG mfg branded business. Amazon’s strength is that it turns other retailers and products into commodities.
It’s a smart move. There’s definitely been a trend towards private-label products — there are a lot of pros. Who better than Amazon to capitalize on it and execute it better than most?