Amazon.com, Inc. (NASDAQ:AMZN) surely wants to become the biggest and most profitable company in the world. The e-commerce giant already has several businesses and now it is ready to welcome another new division. The Wall Street Journal (WSJ) reports that the company plans to shake up the food industry as it debuts its own line of private-label perishables.
The report reveals that the giant has taken off into another business with the groceries including coffee and baby food. The company now sells two new brands for coffee and baby food labeled as Happy Belly and Mama Bear. Coffee is currently the main focus as the company attempts to take on Starbucks. The company also plans to push deep into other segments as reported by WSJ last month, which means it also wants to take on Earth’s Best baby foods. WSJ said that the e-commerce giant plans for four new private-label brands, including Presto!, Wickedly Prime, and Mama Bear. Hence, the remaining brands are likely going to be launched in the near future and the products it is expected to sell include spices, nuts, vitamins, tea, and household items such as detergents.
This is not the first time that Amazon has stepped into the private-label business. The company has been trying to enter this business since quite a while now. Last month, it entered into the fashion segment with launch of seven clothing brands, including North Eleven scarves and Lark & Ro Dresses. The move has been an attempt to take on another hometown company called Nordstorm. The company also launched its own diapers line back in 2015 but that didn’t prove to be successful and it was pulled off in just seven weeks of the launch.
The company is more determined this time and has come up with a better strategy. Just like its clothing brands, the company is positioning its food brands as high quality premium products as it believes that is the only way it can take on competitors like Starbucks. The company has adopted a very competitive pricing as well. For instance, Amazon’s apple blueberry organic food costs $12.49 for a dozen 4-ounce jars. This is slightly higher than $12 for 12-pack of Earth’s Best brand organic food. Similarly a nine ounce bag of Happy Belly coffee retails for $9.99 compared to $13.95 French Roast 12 ounce bag of coffee from Starbucks.
The main reason behind Amazon stepping into the private label business is that these brands allows the company to charge high prices and in turn results in high profits. On the other hand, Amazon receives a small standard margin from selling products manufactured by others. These products also give the company a better control over the shipping and distribution as privately manufactured products are more reliable. Amazon is also moving toward adding shipping and distribution to its business and hence a reliable service is very important to gain traction in the new segment as well as promote is existing two-day free shipping Prime business.
Another important reason behind these private labels is to boost its Prime service that offers extra benefits to its subscribers for just $99 per year membership. Prime members spend a lot more than the non-Prime customers and so to promote its subscription is in the best interest of the company. All the new private label brands will exclusively be available to only the Prime members, which means they are likely going to help boost the Prime subscriptions and hence the sales. According to Consumer Intelligence Research Partners, by last December, 54 million or 47% of Amazon customers in US had a Prime Membership. While the proportion is already quite high, it is likely going to go up further as Amazon increase the number of private labels.
Amazon is also going for the said segment because growth in private label sales is outpacing that of consumer packages goods. According to Information Resources Inc., consumer packaged goods industry currently has an average growth of 1.6% with total market size of $725 billion, compared to private label sales growth of 2.1% and total market size of $120 billion.
An important thing to note here is that though Amazon is coming up with its private labels, it doesn’t advertise about this action and very few know about it. It has not mentioned its name anywhere on the products and the product description pages. This is likely because the company wants to protect its image in a case where its product fails such as its Elements diapers, Amazon WebPay, and its Fire phone. Hence, the company now hopes that its perishables will be much successful unlike its failures in the past.