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Market View: How to Counter Amazon’s Entry Into Food

The online retailer’s development of food brands should be a wakeup call to all food and beverage processors.

By John Stanton, Contributing Editor

Well, the inevitable finally happened. Amazon, one of the largest retailers in the world, with one of the most respected brand names in the world, has developed its own private label food products. Not only will it include traditional center-of-the-store products but Amazon is expected to push fresh perishable foods as well. Reported say the first of these brands should appear by the end of this summer.

In developing private label products, Amazon is entering a growth market. Store brands reached $118 billion in sales last year, which was up $2.2 billion from the previous year, according to the Private Label Manufacturers Assn. So as long as traditional retailers are already taking away sales from branded companies with their own private label products, why shouldn't Amazon enter the fray? I expect them to do very, very well.

Think of the marketing strength Amazon is capable of bringing to this marketplace. It already grew its other consumer packaged goods (CPG) businesses by 42 percent in 2015, outpacing the 30 percent growth of overall e-commerce and far outpacing the growth in brick and mortar stores. Granted, we’re talking about growth from a much smaller base but it’s also clear consumers are moving in that direction.

Amazon was already “the great equalizer” by placing a mom-and-pop operation's homemade jellies from wild fruits and berries next to Smucker’s. Now we will be able to see choices like “Happy Belly” (a potential name for an Amazon private label brand) next to the two aforementioned brands.

There are a number of steps food processors must consider if they expect to compete with Amazon’s private label product. The first thing is for food processors to get back to innovation. One thing the private label industry in general has failed to do is to come out with truly innovative products. Those companies have been satisfied with the profits they’ve been making by creating look-alike brands and brand extensions.

Innovation is a way to keep the legacy brands ahead of the pack. New products, new packaging, new sizes, new everything that the modern consumer wants to buy. This has always been the hallmark of the branded food business, but in our quest to get quarterly profits higher we’ve taken our eye off the consumer.

A second thing is to use every available channel of communication to tell consumers why your brand is the best choice. While it’s important to have shelf space and to placate retailers by giving them all sorts of financial incentives to keep your products on the shelf, we need to get consumers to take products off the shelf. Today’s consumers are using a much wider variety of communication channels than ever before. I would provide a list of the various online channels of communication but by the time this article is published they are likely to be antiquated and replaced by totally new channels. When I discussed this with one food processor, he was miffed by my criticism that his company really didn’t have a strong online presence. He made it quite clear to me “they did have a website.”

A third alternative, which some consider anathema, is to make private label products for Amazon. Two things are likely to be true. Neither you nor Amazon wants to produce the exact same product that is available in the bricks and mortar channel. So you can still maintain a unique product on the shelves and of course the opportunity to introduce your innovative products.

Even if those Amazon sales do not produce the same margins you get in the traditional grocery store, there should be substantial opportunities to spread the overhead across more categories. Don’t forget you may make more money with a lower margin and a lot of sales than a higher margin and fewer sales.

I think one of the hardest parts of being a senior marketing manager is the recognition there needs to be a lot of change. No one I have ever met says they love to change their marketing programs or their products. Unfortunately, the world has been changing dramatically and it makes no sense to lament the fact that one of the world’s largest retailers is going to start selling private label products. It also makes no sense to ignore all of the emerging channels of distribution that are developing because you have traditionally sold to supermarkets.

The mantra for food marketers must be “think a new and act anew.”