Are CPG companies giving up too much to Amazon?
Through a special arrangement, what follows is an excerpt of an article from WayfinD, a quarterly e-magazine filled with insights, trends and predictions from the retail and foodservice experts at WD Partners.
Are CPG companies consciously deciding to align with the logistic powerhouse of the future instead of the distribution giants (brick-and-mortar retailers) of the 20th century?
It’s not so far-fetched. Early signs indicate that’s where we are headed, with Amazon’s well-known ambition and nascent expansion into grocery delivery. If Amazon can habituate people to repeat purchases through scheduled deliveries, where does that leave retailers or upstart, category-busting brands?
Despite commanding only 6 percent of total retail sales at the end of 2012, CPG companies like P&G, Georgia Pacific and Seventh Generation have given Amazon every advantage it needs to cement and automate consumer purchases on a weekly or monthly basis. By inviting the online behemoth into its warehouses, as recently reported, CPG companies are basically saying to retailers, "Sure, you helped me build a billion-dollar brand, but now we are going to help your biggest competitor!"
In 2014, I see three shifts worth watching around this development:
The duality of consumer v. shopper will be dismantled: The consumer is where you focus to build a brand; the shopper is where you focus to close the sale. Maybe that’s the way it has worked for decades, but not in the future. Those once clear strategic lines are increasingly muddled by the disruptive role mobile plays along the path to purchase. This demands a radically different go-to-market strategy for brands.
The wildcard of Millennial preferences will keep everyone guessing: For retailers, the enemy is Amazon. For CPG companies, the foe is private-label. Or is it? After all, somewhere between these pitched battles is another threat: Millennial apathy toward big, multinational brands. They don’t want them. They want local, small-batch and environmentally responsible. Yet if the next generation wants the new, the local and the ethically sourced, why are CPG brands working with Amazon to build a system that caters to the established, the tried-and-true, the blockbuster brand only? More importantly, are retailers or Amazon better suited to help CPG companies appease the counterculture tendencies of Millennials?
Retail isn’t theatre anymore, but it could be again: If all those automated purchases budgeted with smartphone apps handle all the necessities, what happens to the extra money left over? What promised novelty and newness will drive consumers back to stores again?
Amazon’s aggressive push into every corner of consumption and consumer culture isn’t inevitable. CPG brands need to consider whether they are ceding too much of the already limited margin they have for changing consumer behavior.
Will consumers’ growing acceptance of an automated online grocery purchase cycle stifle innovation in CPG categories? Should CPG brands be cautious of overly supporting Amazon’s push into online grocery?