retail news in context, analysis with attitude

Published reports today say that Amazon is preparing to unveil a line of private label grocery products that will include categories such as milk, cereal, cookies and baby food, as well as non-edibles such as household cleaners. The move comes as Amazon continues to roll out its Fresh grocery delivery service, as well as expand its capacity for same-day shipping - all of which seem targeted at putting grocery front-and-center of the company's long-term strategy.

According to the Wall Street Journal, "Amazon’s planned expansion in the private-label business mirrors a more traditional retail model where name-brand products are sold beside store-owned goods. Private labels have become a vital business for mass-market retailers, generating stronger margins and building loyalty with consumers who no longer view generic products as lower quality.

"Earlier this month, Amazon sought trademark protection for more than two dozen categories under its Elements brand, including coffee, soup, pasta, water, vitamins, dog food and household items like razors and cleaning products."

Time writes that the move reflects Amazon's desire "to take its fight with the likes of Costco Wholesale, Target and Walmart deeper into the grocery aisles ... The foray into private-label grocery comes as food is becoming ever-bigger business for major retailers. Groceries can bring higher profit margins despite the lower retail prices some retailers charge because the companies save on the marketing costs.

"Such in-house brands are also finding more acceptance with customers, many of whom are increasingly looking for bargains and are more open to buying store brands."

The Journal says that Amazon has spoken with a number of private label purveyors, including TreeHouse Foods, which some reports say has been chosen as its own-label supplier. However, neither Amazon nor TreeHouse are commenting on those reports.

This move has been rumored for a couple of years, but this is the first time that it seems to be anchored in reality.
KC's View:
First, let me take a moment to contort myself so I can pay myself on the back ... because I've been suggesting that for years that is is the path on which Amazon inevitably would find itself. And I think I first wrote it when I ordered a cover for my Garmin and was able to save money when I ordered one that carried Amazon's private label; if this could work for a Garmin cover, I reasoned, wouldn't grocery be a natural next step?

(Of course, even a broken clock is right twice a day. Let's face it, I got lucky. End of back-patting.)

Having suggested that this is a natural next step, let me walk that back a bit. It also is a step that is fraught with complications, because Amazon is going to have to take an entirely different role now when it comes to quality control. It learned that the hard way when it brought out private label diapers in its Elements line, and then had to pull them back because of quality issues.

This ain't easy stuff to do. It is a good time to do it, because private label is an ascending category, if you can get the quality-value equation right.

Now, if I were Amazon (and I think it is fair to concede that Amazon won't be taking advice from me anytime soon), one of the things I'd do is a lot of sampling. If I were bringing out a line of cookies, for example, I'd go into the database and find out who has been a big cookie purchaser and send them some freebies, asking for feedback.

I think that Amazon has to model its private label groceries on Costco, which always has put quality first in developing items that carry the Kirkland label. (In some cases, its private label is so strong and so respected that it actually can charge more for it than for national brands.)

One of the things that Amazon has going for it is a high level of price transparency, so if it is undercut national brands on price, it will be able to make that fact very evident ... and can use its famed algorithms to figure out which of its customers are most price sensitive, and then market directly to them.

Y'know, there are still retailers out there who believe that their business is not really threatened by Amazon ... but I hope that this new story convinces them otherwise.

Amazon threatens everybody.

Remember what Woody Allen said about relationships in Annie Hall? He said they are like sharks - they have to keep moving forward or they die.

That's what Amazon is like these days. Moving forward. And eating everything in its path.