How Amazon Plans To Dominate The Private Label Market
Amazon already has the loyalty of 100 million Prime members, a most dedicated audience that paid $99 for the privilege, though soon it will go up to $119 per year. Now it wants to go even deeper with the 68% of Americans who own pets. Amazon just launched its own private label brand of dry dog food called Wag, which is reputedly the first of a major expansion of the company’s pet products business.
Amazon is getting into pet products in a serious way after its AmazonBasics line of pet carriers and beds generated some $2 million in sales last year, according to a report by One Click Retail. Now Wag dog food joins the party of the estimated $30 billion pet food market, which accounts for the largest share of the $72.1 billion Americans spent on their pets last year.
Wag dog food competes in the premium dog food segment, with meat being its primary ingredient and lentils added as binder instead of grains, as is typical in mass brands. Priced at $44.99 for a 30 lb. bag, it undercuts the price of Blue Wilderness brand, another meat-first, grain-free line, which sells for $49.99 for a 24 lb. bag on Amazon. Both brands are delivered via Prime.
Wag is adding to some 80 private label brands in Amazon’s arsenal to capture a dominant share of the private label business, estimated by Nielsen to account for nearly one in every 5 items sold in U.S. supermarkets during 2016. That totals an estimated $150 billion in supermarket sales, as value-yearning consumers no longer feel the stigma of buying store brands.
Private label is where it’s at
In today’s “paradox of choice” consumer economy, characterized by consumers confronted with too many choices in most any category under consideration for purchase, private label brands make the selection process simple and smart.
Shoppers already trust the retailer that they are patronizing, so they confidently extend that trust to buying their private label brands. That those private label brands are cheaper than the national brands is another good reason, especially with the knowledge that private label products today are often manufactured by the same companies that make the name brands and to virtually identical quality standards.
That is why Cadent Consulting Group predicts that private labels will “steal” as much as $64 billion from the nationally advertised brands in the next ten years, rising from 17.7% of the CPG/food market in 2017 to 25.7% in 2027. The group further predicts that Amazon, including its Whole Foods 365 Everyday Value brand, with an estimated $2 billion in sales added to Amazon’s $2 billion grocery private label sales in 2017, will grow to $20 billion by 2027.
Amazon’s plans for private label dominance
A recent study by Gartner L2 delves more deeply into Amazon’s ambitious private label brand strategy across all its offerings, which in sheer numbers is led by its home-grown clothing, shoes and jewelry brands, accounting for 86% of Amazon’s private label brands. In that study, the authors ask the provocative question, “Do first-party and third-party sellers have any hope in competing against Amazon’s private label brands?”
The answer clearly is “not much,” as Amazon has aggressively moved into garden/outdoor, grocery, health/household, home/kitchen as well as its cross-category everyday commodity essentials, AmazonBasics, which are only available to Prime members. The study concludes, “Brands need to accept that private label will play an increasingly important role in Amazon’s overall strategy, particularly in categories where Amazon goes head-to-head against traditional retailers.”
AmazonBasic is its ace in the hole
The Gartner L2 study also reveals that AmazonBasics is the big winner in its private label business. While only three of Amazon’s ~80 private brands include “Amazon” in their name, these represent nearly 25% of the company’s private label products. This suggests, the report states, that “they represent an outsize role in Amazon’s private label strategy,” noting that the number includes its Whole Foods 365 house brand.
“AmazonBasics has cannibalized assortment from Amazon’s non-branded private brands over the years,” the report continues, finding that Amazon-branded labels typically sell for less than the comparable non-Amazon branded products.
By playing both sides of the Amazon-branded and non-branded private label business, the study concludes, it “allows Amazon to identify promising private label products for its more valuable branded-label business.” Of note, its new Wag dog food straddles the line by adding Amazon to its official brand name, “Wag Dry Dog Food by Amazon.”
Amazon is in the catbird’s seat
Amazon has established itself as people’s default product-search engine. According to research firm Survata, some 49% of consumers’ first product search starts on Amazon, and for the other 36% of product searches that start on Google or another search engine, a goodly percentage are going to point to an Amazon listing first. And the Survata study doesn’t separate out the preferences of Amazon’s most loyal Prime members, who I suspect have an even greater likelihood to turn to Amazon first.
These findings about where consumers’ product searches begin highlights the Gartner L2 finding that “Amazon operates more like a traditional search engine than a traditional retailer.” Amazon knows even better than Google what customers want and need and when they are likely to need the product again for replenishment.
That big data puts Amazon in the catbird’s seat when it comes to deciding what products are its best candidates for the next private label branding opportunity and further how to slot their home-grown products into their captive search engine to pull the best prospective customers, most especially its Prime members.
It is ironic that so many companies, having gotten onboard Amazon in their search for new customers and broader distribution, are now effectively colluding with Amazon to give their business over to it. Amazon holds all the cards and at the rate it is going, there doesn’t seem a way to stop its juggernaut.