The Time Is Now

When it began expanding its AmazonFresh grocery delivery model a couple of years ago, Seattle-based Amazon.com caused many traditional retailers to speculate when the e-commerce giant was planning to enter the private label game — a game on which many of these retailers rely to not only bring value to their shoppers, but also differentiate their assortment from those of the competitors.

Then in December 2014, Amazon finally made its move, announcing the launch of Amazon Elements, a private brand line of premium everyday essentials with transparent origins. Exclusively available to members of the Amazon Prime loyalty program — which, for $99 per year, gives members unlimited free two-day shipping, among other perks — the line offers an “unprecedented level of information” that communicates the names of products’ manufacturers, where and when items were made, why each ingredient is included, each ingredient’s origin and more — all at customers’ fingertips from the time they start their shopping experience to the point of delivery.

First to the line were Amazon Elements diapers and baby wipes, Amazon said. The products can be purchased in one-time deals via the Amazon Elements page or through the auto-replenishment service offered at Amazon’s Subscribe & Save page.

And though it likely will take some time, Amazon is expected to eventually enter the store brand foods business, says Jim Wisner, president of Wisner Marketing Group, Libertyville, Ill.

To better compete against Amazon — and prepare for any new store brand initiatives it could have in the works — retailers will want to consider doing these four things:

1. Developing an understanding of online grocery shoppers

To go up against Amazon — especially when it comes to curating assortment and developing private brands — one must first understand who shops for consumables online and why they do so. With this information, retailers can develop programs and goods to better compete.

“Online Grocery Sales in the US,” a December 2014 report from IBISWorld, says a majority of online grocery shoppers include single- or dual-income households with no children, where members are technologically savvy, time-poor and affluent. Convenience tends to matter more than product price and delivery charges to this group.

Another large category is families with young children, which also includes single parents, dual-income households, and middle-income and above-average-earning households. It also includes adults in their late 20s to 40s with one or more children.

And individuals who find it hard to get out of the house — including the elderly and disabled — make up a significant share of online grocery shoppers, IBISWorld notes.

It’s also worth noting that female shoppers make up about 54.7 percent of total online grocery shoppers, while male shoppers make up about 45.3 percent, IBISWorld says.

Of course, listening to shoppers is another important way to understand them. And according to IBISWorld, online grocery shoppers are more likely than the average Internet user to read and post product reviews online. Retailers will need to consider this tendency when competing against Amazon with their private brands, as Amazon claims that its customers were the “inspiration” for the brand — and it takes their opinions seriously.

“We know it’s challenging to navigate all the choices and marketing messages you face while shopping for your family,” the retailer said on its site. “We thought we could do better in three ways: listening to your feedback for what matters most, making products that live up to your high standards, and sharing every detail to inform your decisions.”

It lived up to this promise on Jan. 21 — less than two months after its first Amazon Elements launches — when it sent an e-mail to subscribers of the Amazon Elements diapers, announcing that it pulled the diapers temporarily from its selection to make improvements based on early customer feedback.

2. Create a loyalty program

Having a loyal customer base is a key success factor for competing in e-commerce grocery retailing, IBISWorld notes, as the base will “attract repeat buyers and ensure continued sales.” However, doing so might take time and will require strong before-and after-sale customer service.

And a strong loyalty program can play a critical role in driving customer loyalty. Amazon clearly understood this when developing Amazon Prime; today, Amazon boasts between 30 million and 40 million Amazon Prime members in the United States, says Neil Stern, senior partner with Chicago-based McMillanDoolittle. These folks tend to purchase, on average, about four times as much as non-members, according to a July 28 article on the website of Home Media magazine. “Once they get people hooked on the Prime thing, they need to pay off their 99 bucks — so they use a lot,” Wisner says. “Not unlike the club-store model.”

So the battle with Amazon isn’t a product-byproduct tournament. Retailers need to understand that if a shopper passes on a store brand product at his local supermarket in favor of a suitable, better-priced item on Amazon, then it’s lost more than the purchase of one product — it’s lost an entire shopping trip, including any ancillary purchases, Wisner says. And if this scenario keeps happening, the losses can add up.

Therefore, retailers have a good reason to set up their own “club-type” program, Wisner notes. Yet few retailers have done so and gone after it seriously.

With “a new mother, I’m going to [want to] be the only place they would want to go for all the things they need — for infant diapers and all the core stuff,” he says.

For example, Wisner says, if a retailer offers 50 weekly coupons — each expiring after one week — to moms who plan to purchase 50 packs of store brand diapers over the year, then not going to the store and using the coupons ends up costing the shoppers more money and reduces convenience.

And such programs don’t have to be limited to consumables categories in which Amazon already operates with its private brands. Paul Weitzel, managing partner with Willard Bishop, Barrington, Ill., says retailers could use their private brands for loyalty programs in any high-volume baby and kids categories, natural and organic categories, and weekly purchased categories that can go on auto-replenishment.

Some specific types of products Stern gives as examples here are household paper and cleaning goods, coffee and tea (particularly pods), and cereal and breakfast/energy bars.

Prepared foods are another area of opportunity, Wisner points out, as Amazon does not yet have the resources to enter the category.

3. Be very transparent

Even though it has been more common in parts of Europe and Asia, transparency regarding store brand products’ origins is relatively new in the United States.

“Obviously, U.S. retailers believe that their ability to source is a competitive advantage and make it difficult to trace product origins,” Stern explains.

Carol Spieckerman, president, newmarketbuilders, says she finds it fascinating that even though retailers such as Bentonville, Ark.-based Walmart have hinted at pioneering and formalizing next-stage product transparency standards and practices, Amazon is the company that actually took up the mantle.

“This is a big deal, and it’s at the leading edge of change that will not only impact private label — it will/is changing the game for all product producers,” states Bill Bishop, chief architect, Brick Meets Click, Barrington.

The key thing to keep in mind, according to Bishop, is that retailers’ only way to achieve such transparency is online — where retailers can share all the info that cannot be printed on labels — which dovetails nicely with Amazon’s business model. Therefore, competing retailers will be required to change their practices and open up greater transparency into product production — as well as find ways to leverage the strengths of traceability for all sorts of purposes. Competitors also will be required to develop the online capability to deliver traceability information and extract value from all of the new information.

“This is one of the places where omnichannel retailing can find [a] competitive advantage over Amazon — if they play their cards properly,” Bishop explains.

Wisner notes that for years, he has told retailers that transparency is a way for them to show that they have a better product.

“It allows you to give a back story to every product, if you want,” he says, noting that retailers can describe how their buyers “climbed the mountains on donkeys to find” the product. “You can have a ball with it.”

4. Develop a speedy delivery service

The world of e-commerce has been moving from next-day delivery to same-day delivery — and now to on-demand delivery, Weitzel explains, noting that some services already deliver groceries to the home within a half hour.

Currently, Amazon offers its Amazon Prime Fresh membership in a few major U.S. cities. For $299 per year, members receive free scheduled same-day and early next-morning delivery of orders of more than $35, including fresh groceries and other eligible items. The service also offers products from local shops — for instance, Gotham Greens, Brooklyn Cupcake and Red Hook Lobster Pound, all in New York — to curate an even more exclusive assortment by providing local products city-dwellers love with the rest of their order.

Stern notes that Amazon Prime Fresh, in particular, could be a “significant game-changer” for grocery-driven e-commerce, essentially negating some of the convenience advantages brick-and-mortar retailers have.

“That said, it is still extremely difficult to economically deliver to the home — ideas like lockers, Amazon Prime Fresh, etc., are workarounds to work out the economics,” he says. “There is no question that this is the key battlefield for 2015, which will play out in bigger cities first.”

Spieckerman, however, notes that multiple retailers “are all over” same-day — and, in some cases, same-hour — delivery.

“In fact, retailers that operate physical locations are beginning to realize that they have a tremendous advantage over Amazon both from a cost and convenience perspective as they hone their ship-from-store capabilities,” she says. “At this point, Amazon is at a cost disadvantage, and it’s actually still a “pure-play” retailer that is reliant on shipping from distribution centers, whereas the majority of its competitors are truly ‘multi-channel.’ Amazon is less flexible in the scheme of things.”

For traditional retailers looking to offer speedy delivery of products — including private brand ones — partnering with third-party delivery services such as Instacart could give them the chance to compete well against Amazon’s Prime Fresh service, Stern explains. And collaborating with local restaurants and specialty shops could help retailers’ develop an even more exclusive assortment of locally produced products that cannot be found anywhere else — possibly even on Amazon.com.

Of course, not everyone who orders online wants strangers coming to their door for deliveries, Wisner notes. Therefore, retailers will want to make sure they offer shoppers a pick-up option at stores, too.

Speaking of picking up orders, Wisner notes that retailers could position themselves as official drop-off points for Amazon shipments. Doing so gets Amazon customers into the store, at which point the retailer could market any of its goods and services — including store brand items — to them.