Retailers not the only ones feeling the Amazon/Whole Foods heat

Published on: August 28, 2017
By: Ryne Misso

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With Amazon set to cut prices at Whole Foods starting today, the entire grocery retail industry is bracing for impact (if not already feeling the heat). There is no shortage of speculation on what this move means for grocery stores. Will grocers be able to compete with the price and quality combination offered at Whole Foods’ stores post-acquisition? How quickly will Whole Foods assortment be available for purchase online at Amazon? How will Amazon transform today’s grocery fulfillment models?

There’s no doubt this deal has an immediate and substantial effect on retailers. What’s less talked about is the equally significant impact the deal will have on national brand manufacturers in food and CPG. 

More specifically, the acquisition will serve to fuel the growing private label presence in the US market, threatening the market share of national brands. One of Amazon’s first action items in their strategy with Whole Foods is to make their private label assortment available through Amazon.com, AmazonFresh, Prime Pantry and Prime Now. This is just the latest in a string of blows suffered by national brands at the hands of private label.

During our campaign tracking the launch of Lidl into the US market, we examined their private label strategy at length. Over 90% of Lidl’s advertised products during the first month of their launch were private label goods, leaving little room for national brand alternatives to gain promotional exposure. Beyond share of voice, Lidl even went as far as mimicking the packaging of some successful US national brands—including snack category leader Frito-Lay—presumably to create the perception among shoppers that they are getting the same quality product, but at a lower cost.

Shortly after Lidl’s launch came the launch of Brandless, a new online retailer offering a variety of food, household supplies, beauty and personal care items, and other “brandless” products, all for $3. Their business model is centered around eliminating what they call the “BrandTax,” or costs associated with the marketing and distribution of nationally recognizable brands. Not only is Brandless creating more competition for national brand manufacturers, but they are also calling out all national brands in their mission statement, which suggests the name brand is the reason consumers are paying more.

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Make no mistake, Amazon’s retail competitors are not the only ones losing sleep over this deal. National brands have been under siege throughout 2017, and this might be their biggest blow yet. Whole Foods private label products stand to grow immensely once they gain exposure to Amazon’s network of loyal customers. And, with Amazon’s support, these products are sure to be at the forefront of grocery’s shift to eCommerce.

With competition intensifying, and private label gaining momentum seemingly everywhere, the time is now for national brand manufacturers to re-center their focus on the consumer. Below are some key considerations for US national brands as they pave their path forward in this new ecosystem:

Shift focus away from price
We know this may sound crazy, knowing that most consumers still consider price the ultimate deciding factor when making their purchase decisions. However, today’s consumer is willing to cede a bit on price if the overall perceived value of their purchase is greater. Finding points of differentiation that do not center on price, but enhance the overall value perception, will only serve to benefit national brands.

Re-prioritize eCommerce efforts
Most grocery brands already have an eCommerce footprint today, but they should not be satisfied. The grocery industry still does not quite know what differentiated value looks like in eCommerce, leaving room for leading companies to define the online grocery experience. Be willing to experiment in the eCommerce space, with the aim of being the innovator, not the follower.

Avoid swimming upstream
For many retailers, private label is a key element to their strategy going forward, and that is not likely to change. Nor is the fact that consumers have fewer concerns about private label product quality, especially as they see a more diverse set of private label options on the shelf. The private label trend is here to stay, so it will serve national brands well to avoid resisting. Focus marketing efforts on why consumers should choose your brands and products, rather than using your voice to convince them NOT to buy private label.

 

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Ryne Misso is the Director of Marketing at Market Track, a leading provider of marketing and business intelligence. He can be reached at rmisso@markettrack.com.

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