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Amazon’s Real Threat

April 23, 2018 by Raj B. Shroff

Much has been made of the growth of Smart Speakers (e.g. Amazon Echo, Google Home, etc.) and the impact that these Voice activated devices are going to have on brands. A quick search yields a range of hot takes on the subject including our piece speaking to opportunity of Voice.

Voice presents a myriad of unknowns for brands that will only continue to be more relevant, with 16% of Americans currently owning a Smart Speaker and 55% projected to do so by 2022. This is real growth with potential disruption to the typical areas (e.g. TV) but even the almighty Smartphone. However, despite all the noise it continues to be our opinion that Voice presents more opportunity than risk to brands, at least brands with their house in order (see post above).

While Voice is creating all this noise in the marketplace and the majority of the noise leaning to Amazon with how they are going to kill brands through Alexa, the retail giant has been quietly building an empire that is of much much greater risk to brands. With minimal fanfare the retailer has built up their Private Label business which now amasses to over 70 brands. I realize talking about Private Label is much less sexy and interesting than discussing how a Voice activated speaker is going to be the end of Tide, Dove or another CPG staple brand. But, it is of much greater significance and risk to the very brands that rely on Amazon. This is different than Kroger creating a line of Paper Towels or Target creating a line of food products, this is Amazon.

And the timing could not be better which can’t be a coincidence. Private Label is experiencing a renaissance of sorts with recent growth of Private Label brands surpassing that of branded competitors. With consumer interest and willingness to try lower cost alternatives combined with the perception of Store Brands (e.g. Private Label) stronger than ever before, branded competitors need to be “woke”. Companies like Trader Joe’s, Whole Foods and even Target have been investing in Private Label for some time but none has the scale, convenience and willingness to invest for the long tail (e.g. little to no profit in near term) that Amazon does.

Amazon has money, audience size and both online + offline vehicles to distribute their products. They also have a handy Dynamic Pricing algorithm that makes decisions about changing prices depending on how the competition change them and the sales of that product; always ensuring they are priced at or just below competitors. And oh yeah, don’t forget all that data they have on their shoppers as well as the branded products they buy (e.g. Tide, Dove, etc. aka the competition). Folks, pretty sure this is what is called competitive advantage.

It is still early but their recent expansion into diapers, baby food and laundry detergent builds onto already established paper towel and toilet paper brands. This creates a nice breadth to their CPG product line, one that starts to feel like a very real competitive threat to the folks in Cincinnati (and others who sell CPG staple products). Possibly what is behind news we have seen recently like this? Not saying P&G is scared (yet) but it sure looks that way and they should be. Only takes one try (driven by voice or otherwise) to realize that Presto Paper Towels or Laundry Pods (Amazon PL) save money and do essentially the same thing as Bounty or Tide. Same goes for [insert TBD Amazon brand] and [insert competitive branded player] as they continue to evolve their Private Label offering, the possibilities for Amazon are quite endless while the risk to brands is as well, save for some categories like Candy, Produce, etc.

Unlike like with Voice, we see largely risk, risk and more risk here for brands. That risk is doused with gas when you consider the power of Amazon’s Private Label combined with their Go stores, Whole Foods stores, online presence and Echo growth. You’ve been warned.

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