Amazon’s growth into private label should put grocers on high alert

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Amazon’s growth into private label should put grocers on high alert

By Ryne Misso, Market Track - 08/01/2016

This spring, various news outlets, including The Wall Street Journal, reported that e-commerce giant planned to introduce a number of private brands in the food space, in categories such as nuts, spices, tea, coffee, baby food, cooking oils and vitamins. These new private brands in Amazon’s arsenal, which began rolling out recently, are Happy Belly (nuts, cereals, coffee, and other dry grocery goods), Wickedly Prime (snacks) and Mama Bear (baby products).

The efforts to expand its assortment of private label products into the food space makes sense for Amazon in several respects. First, the consumer packaged goods (CPG) industry overall has looked toward the e-commerce space as the next frontier, given that consumers are going online more often for their grocery needs. Grocers across the country are launching their own forms of “click-and-collect” — such as Kroger’s “CheckList” and Giant Eagle’s “Curbside Express” — enabling consumers to shop online and either pick up their products at a nearby store location or have them delivered to their front door. By turning its attention to the CPG space, Amazon stays at the forefront of e-commerce trends.

Second, private brand goods provide higher profit margins for retailers. This is especially important for Amazon, given its willingness to concede on price for other goods and on shipping costs to win traffic and conversions.

Many brick-and-mortar grocery stores maintain significant assortments of store brand products to drive margins as well. Market Track’s 2016 Shopper Insight Series survey found that 88 percent of shoppers will buy private label products due to price. The news of Amazon growing its private brand business should put grocery stores — in particular, those that rely heavily on their store brands to drive sales and profit — on high alert.

Market Track, which monitors competitive retail promotions in print, digital and broadcast media, dug deeper into the implications of Amazon’s private label growth on the rest of the grocery retail channel. As print circulars remain the primary advertising vehicle grocery shoppers use to decide where to shop and what to buy, Market Track reviewed how grocers have supported private label in their print feature ads for a selection of the categories Amazon is entering. Focusing on the coffee, tea and cooking oil categories, Market Track measured the percentage of print feature ads for each of the three categories that included store brand products. The study reviewed all print circular advertising run by grocery channel retailers in the 12 months ending in May 2016.

Market Track found that private label products accounted for about one in every 10 coffee and tea feature ads, and for more than one in every five cooking oil ads (see the figure).

For all three categories, store brand products received significant promotional support from grocers. Cooking oil, in particular, could be a category of concern for grocers. More than 20 percent of cooking oil feature ads promoted a private label product, suggesting that grocers see the category as one in which shoppers are less brandloyal, and more price-sensitive. Should Amazon’s new cooking oil products beat, or at least match, prices on grocery store private labels, consumers might not hesitate to replace their trip to the store with a trip online.