Where would this industry— or people like me for that matter—be without some- thing to buzzabout? Over the past several
months there has been an unusual amount
about that beast with a thousand arms called
Amazon and the expansion of its private
label. It comes as no surprise that the online
retailer is shooting for a bigger piece of this
$118 billion high-margin pie and yet another
category where it can control branding and
Recent entry into the private label segment include labels like Happy Belly for
nuts, spices, tea and
cooking oils; Presto,
for detergents and
other home goods;
Wickedly Prime for
snacks; and Mama
Bear for diapers and
baby food. Then there
is Society New York for
women’s clothing and
Franklin and Freeman
for men’s shoes. While
some observers feel
the names are a bit
haphazard they are kitschy enough to attract
Some retail industry sources believe that
Amazon’s opportunistic, throw-everything-against–the-wall-to-see-what-sticks strategy,
might not work well in private label. And its
tendency to change terms on short notice
may not sit well with entrepreneurial vendors.
I have been working with private label
retailers and manufacturers for many years.
The one thing this diverse group has in com-
mon can be summed up in one word—com-
mitment. Building an effective, consistent
and profitable private label business is a
long-term proposition that has to gain the
trust of consumers who have no shortage of
products from which to choose.
From my perspective, Amazon, now the
nation’s ninth largest retailer, is less concerned with developing products then it is
having control over shipping and distribution. The thinking is that consumers, particularly the much-coveted Millennials, are more
loyal to companies that distribute products
than they are the actual brands.
Clearly, private label gives Amazon greater
control over shipping and distribution. But
they seem to be holding private label at arm’s
length—not identifying it as part of Amazon
in any way and publicizing the manufacturer’s customer service department rather than
All this could change as Amazon continues
to roll out products. But as every brand or private label marketer knows, you have to take
ownership of a product to make it successful and build customer loyalty. Another mistake that should be rectified at some point
is only offering items to its Amazon Prime
$99-a-year members. This can give the products a certain exclusivity, but it also makes
private label seem like another money grab.
As one Gartner analyst said: “The entire
Amazon ecosystem revolves around Prime.”
The reason is that it is incredibly lucrative
and Amazon does not have to lift a finger.
Moreover, research by Consumer Research
Intelligence Partners shows that Prime members—an estimated 52 million—spend
about $1, 100 annually, twice as much as
Once again this brings up the question of
whether Amazon is interested in long-term
development of its own brands or just selling memberships.
In some respects, this is good news for
national brands. However, Amazon’s entry
remains a significant threat to the CPG companies that are already operating under tight
margins. There is just so much cost-cutting
you can do to offset that.
Additionally, Amazon’s reportedly heavy
use of entrepreneurial companies for private label manufacturing could be a double-edged sword. On the upside, it is giving more companies a chance to develop
a private label business with a powerful
and expansive retailer. In effect, Amazon is
expanding the marketplace. Getting a spot
as a seller on Amazon could be a dream
come true for many smaller vendors, but so
was getting your product into Walmart. For
how many has that dream become a stone
The problem here is something I mentioned earlier. Amazon seems to be divorcing
itself from these private brands and simply
throwing them up on the website without
any promotion or connection between
Amazon and its shoppers. Of course on the
upside, this certainly mitigates the risk if a
Furthermore, there is no indication that
Amazon, for whom speed is essential, will
invest the time needed for a product or category to catch on. This is underscored by the
company’s ill-fated venture with Amazon
Essentials several years ago, which were
canned after only a month. More successful is
AmazonBasics, which launched in 2009 and
now has more than 900 products from electronics to domestics.
I would not presume to predict the outcome of Amazon’s private label strategy.
Sometimes you win, sometimes you lose—
but Amazon is not known for leaving money
on the table.
MY PRIVATE AMAZON
Amazon is expanding its private brand offerings, but is the internet giant fully embracing private label?
By Len Lewis
Len Lewis is a regular Grocery
Headquarters columnist and
veteran industry journalist.