Amazon is taking yet another great leap (and causing great trepidation) within the retail industry, by inviting some of the world’s biggest CPG brands to its headquarters in May. The retailer is attempting to convince these brands to abandon their traditional channel partners and sell direct to consumers on Amazon instead.
If Amazon succeeds, big brands may reconsider the design and packaging of certain products so that they are optimized to ship quickly to consumers’ doorsteps.
The RTP editorial team discusses whether traditional retailers will be able to compete in an environment where major CPG brands sell products directly on Amazon.
Debbie Hauss, Editor-in-Chief: This is a bold and gutsy move on Amazon’s part. I think the brands are going to do what’s best for their businesses in the long term, and I don’t think that means bypassing brick-and-mortar stores. I am sure the brands will want to engage with Amazon in addition to continuing to sell in Target, Walmart, grocery stores and other locations. I think pricing will remain competitive across physical and digital locations. In the long run I think the Amazon direct-sell approach will become a strong channel for marketers but it will be just that: another channel. I hope Amazon is not going to threaten brands and try to force them to choose one or the other.
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Adam Blair, Executive Editor: Amazon certainly does like to keep the industry off-balance, yet this move strikes me as more than just another Jeff Bezos-inspired “Let’s see what will make people really crazy” gambit. Even if Amazon wins only a small portion of the enormous CPG market, the impact will go well beyond just the sales dollars it will generate. (And Amazon already offers brand-specific auto-replenishment options with its Dash buttons.) Retailers risk losing not only customers but all-important trade dollars from manufacturers. Supermarkets and big box stores will need to work even harder to upgrade and promote their “perimeter” departments (bakery, fresh meat and seafood, floral, deli, etc.) to draw in customers. The good news is that when they are run well, such departments offer retailers significantly higher margins than the razor-thin profits they squeeze out of center store CPG sales.
Tim Parry, Managing Editor: When you’re as big as Amazon, you can afford to take a chance on CPG exclusivity, and fail fast in the process. Amazon is already in the e-Grocery game, so why not make it simple for customers to add Cheerios and Oreos to their orders? But I don’t think Walmart, Target or any retailer with a bricks-and-mortar presence needs to worry. CPGs want to sell their brand in as many channels as possible, and they’d no doubt want to sell on one as big as Amazon. But CPGs are not about to abandon bricks-and-mortar, no matter how much of a “hard sell” Amazon makes.
Klaudia Tirico, Features Editor: Amazon is really pulling out the big guns here, and I can’t help but giggle. I truly wish I could be a fly on the wall during this “gathering” at Amazon’s Seattle headquarters. The thought of these big CPG brands cutting ties with Walmart and Target just to sell directly to customers online is silly. While I do think there is potential in the space, completely bypassing large retailers is absurd. I know more consumers are shopping online and via their phones, but there are still plenty of people in this country who can’t afford the luxury of a computer or smartphone. It is, however, important for these brands to consider expanding to direct-to-consumer services. As Debbie said, it’s another channel for these brands to sell their goods. Which is great! But, come on, Amazon should really get off its high horse if it thinks these brands will completely avoid brick-and-mortars just because they got invited to a gathering at the e-Commerce giant’s headquarters.
Glenn Taylor, Senior Editor: The whole plan seems silly on the surface given the ties that large CPG players have to major retailers in the industry. But Amazon has taken big steps before to disrupt retail and keep other retailers on their toes, so this meeting isn’t something that can just be ignored. I foresee this leading to a closer relationship between Amazon and some CPGs within the next two to three years. Considering certain brands such as Nike already have Amazon stores, it’s very possible that we will see brands expanding their presence on the e-Commerce marketplace. While brick-and-mortar retailers have plenty of problems to worry about as consumer tastes evolve, this kind of competition probably won’t be one of them. Exiting the four walls of a retail store would be a strange decision given the maximum visibility and consistent presence it provides.
