I was recently asked this question at a conference – should Consumer Packaged Goods companies be worried about Amazon's reported expansion into private label in Consumables?
According to a recent WSJ article, “Amazon.com Inc. in the coming weeks is set to roll out new lines of private-label brands that will include its first broad push into perishable foods…. The new brands with names like Happy Belly, Wickedly Prime and Mama Bear will include nuts, spices, tea, coffee, baby food and vitamins, as well as household items such as diapers and laundry detergents…”
Should CPG companies be worried? Yes. But they should be worried more because most traditional, mainstream CPG companies are not designing for online and innovating fast enough while emerging brands are - including (but not limited to) Amazon private label.
In Boston Consulting Group's article, The Myth of Unlimited Shelf Space, they provide a very telling graphic about the current state of brand leadership: Offline Brand Leaders do not equal Online Brand Leaders.
Amazon has an unfair advantage in the online private label space. First, they have access to all the data they need. They know (on Amazon) the size and opportunity of the category they are going into, they know what customers are searching on, they know how to create content and the right kind of packaging for online. Second, they have access to things other brands don’t – like special templates for content (see Elements Wipes) and various merchandising placements. On the Elements Wipe detail page for example, the "hot link" feature to see other items within the Amazon Best Sellers Rank is disabled - this is one of the ways customers shop and discover and makes it more difficult to find other best selling wipes:
(This is not the case with all Amazon private label items like batteries). Third – they have one big private label mistake under their belt and one thing I know having been at Amazon many years – it’s ok to make a mistake, it’s even encouraged in the name of innovation – you just better be sure to have learned from it and not make the mistake again. Amazon pulled its premium private label diaper just a few months after launch back in Jan 2015. As it gets ready to launch a potential new diaper – they will leverage the failure and learnings and turn lemons into lemonade (at least I hope for that Amazon team’s sake!).
My advice is to watch and study what Amazon does closely and use them as a best in class example. See what they do that you as a brand might want to do. What is the packaging like, how does it come shipped, what content are they building, what is the selling price, what marketing levers are they using to create buzz, traffic, and ultimately sales?
CPG brands have the upper hand in brand equity - but they are behind in designing for online. With online sales less than 10% of their overall business, it's hard to make the big investment, but if they don't I would argue the BCG graph above will become more and more of a larger prophecy.