Published on: March 31, 2017Bloomberg reports that Amazon has invited a number of CPG companies to a three-day meeting in May at which it will work to persuade them that their brands would be best served by cutting out traditional retailers and begin shipping directly to shoppers, a process that Amazon would facilitate.
According to the story, "Amazon is looking to upend relationships between brands and brick-and-mortar stores that for decades have determined how popular products are designed, packaged and shipped. If Amazon succeeds, big brands will think less about creating products that stand out in a Wal-Mart Stores Inc. aisle. Instead, they’ll focus on designing products that can be shipped quickly to customers’ doorsteps. Brands have been experimenting with such changes, so the Seattle event may well resonate."
The invitation reads, in part: ""Times are changing ... Amazon strongly believes that supply chains designed to serve the direct-to-consumer business have the power to bring improved customer experiences and global efficiency. To achieve this requires a major shift in thinking."
General Mills and Mondelez are among the companies that have accepted the invitation.
Bloomberg which obtained a copy of the invitation and broke the story, writes that "manufacturers would have to re-imagine everything from the way products are made to how they're packaged. Laundry detergent could come in sturdier, leak-proof containers. Instead of flimsy packages designed to pop on store shelves, cookies, crackers and cereal could be packed in durable, unadorned boxes. Plants could spit out products for individuals rather than trucks-full of inventory."
The clearly disruptive initiative comes as Amazon continues to look for ways "to crack the food and packaged goods market - an $800 billion category still dominated by Wal-Mart and other traditional chains."
The story notes that the invitation is "unclear who would handle the shipping, though Amazon offers a range of fulfillment services."
- KC's View:
- (No, this isn't an April Fool's story.)
So, let's think about this for a second. It seems to me that it could break a number of ways.
If manufacturers handle the fulfillment themselves, I think it means that Amazon would be serving as an ordering platform, with the ability to reduce costs and prices because part of the supply chain would be eliminated.
If Amazon handles the fulfillment, it really is just a reframing of Amazon's traditional value proposition, though the creation of new packaging would certainly highlight the initiative to consumers. (Unless they want this to be virtually invisible to consumers, but I don't think that makes any sense - this is the sort of thing that you want to get headlines for, since it'll be positioned as pro-consumer.)
I suspect that any manufacturer that attends this meeting will face questions from bricks-and-mortar retailers with which they do business about their intentions; it is hard to have a trusting, collaborative relationship with a company engaged in a relationship with a competitor in which the stated shared goal is to disintermediate you.
I also think that it may be that Amazon is planning to offer manufacturers with which it engages some sort of heightened data flow about the shoppers who buy their products. Suppliers always want to find ways to connect directly to their customers, but retailers resist that; if Amazon were to engineer way to enable this, it could grease the wheels for this initiative to gain some momentum.
Let's not forget that this also happens as Walmart is spending a ton of money and devoting lots of resources to its own e-commerce business. And there's another interesting bit of timing...
I was reading a story in Re/code about how Walmart recently "gathered some of America’s biggest household brands near its Arkansas headquarters for a tough talk" about price. Concerned that it is too often being beaten on price, Walmart told the suppliers that its goal is "to have the lowest price on 80 percent of its sales," which meant that "the brands that sell their goods through Walmart would have to cut their wholesale prices or make other cost adjustments to shave at least 15 percent off. In some cases, vendors say they would lose money on each sale if they met Walmart’s demands."
The message was clear: "Brands that agree to play ball with Walmart could expect better distribution and more strategic help from the giant retailer. And to those that didn’t? Walmart said it would limit their distribution and create its own branded products to directly challenge its own suppliers."
Probably not a coincidence that Amazon says it wants to reimagine everything, and maybe even redefine the retailer-manufacturer relationship in a way that makes Walmart - always a tough negotiator - look bad, or unfriendly, or at least behind the times.
Whatever happens, I think Amazon has managed to get everybody's attention with its desire to share up the CPG and retail businesses.