Trailing in the footsteps of countless retailers, Amazon.com Inc. is preparing to expand its roster of private-label brands to include an array of grocery items such as milk, cereal, and baby food as well as household cleaners. The company’s plan to expand in the private-label business mirrors a more traditional retail model where name-brand products are sold beside store-owned goods. Amazon has approached some private-label food manufacturers seeking a partner. The list of potential manufacturers include TreeHouse Foods Inc. of Oak Brook, Ill., one of the larger private-label producers, with $3 billion in sales last year.
By rolling out a broad portfolio of private-label products, Amazon could yield higher profit margins, while also gaining power over its largest suppliers to clip prices – though many of Amazon’s vendors also produce private-label goods. Amazon, which last year reported a $241 million loss on $89 billion in sales, has been pushing to expand sales of food online, including through its Fresh grocery delivery.
The Up Side
Private-label goods also could bolster Amazon’s reputation as a lower-cost retailer. IRI estimates that private-label products are, on average, 28% less expensive than their name-brand equivalents. It is not easy to foresee how Amazon may price its private-label food goods, when they may be released or whether they will be sold exclusively to Prime members. But it seems likely Amazon would sell them through its Fresh grocery delivery service, available as of now in a handful of U.S. cities.
The Flip Side
The business isn’t without challenges. Amazon must rely on outside manufacturers to design the products and then vouch for the quality. Many of Amazon’s coming private-label products will be ingested, making quality control a critical issue. Unfortunately, not all of Amazon’s private-label ventures have been winners. It discontinued a line of cookware endorsed by a Seattle chef in 2012 and a tool line, in addition to the diaper snafu.
The good news is that Amazon will be transparent about where its products come from, as it has done with the diapers and wipes. The trademark filing mentions the slogan, “Every pack has a story.” Amazon’s page for its wipes details how manufacturer Nice-Pak Products Inc. produces them, starting with the process of moistening them with purified water from the White Lick Creek Aquifier in Mooresville, Ind. So no controversies there!
Just as much as we love to shop from this online megastore, we can’t wait for it to launch its food line to see what this Pandora box has in store for us!