Analysis: this is how Amazon courts the FMCG manufacturers

Amazon means business when it comes to the food industry. Brand manufacturers are invited to circumvent the supermarket and service the consumer directly. Well, not entirely directly, but through Amazon and its conditions are razor-sharp.

Improved ties

Dozens of major American food groups, including Mondelez and General Mills, received a more than remarkable invitation last week, Bloomberg reports. During a three-day convention in Amazon’s headquarters in Seattle, Jeff Wilke (worldwide consumer chief and CEO Jeff Bezos’ confidant) will accompany everyone on a tour and give a speech on behalf of the company.

Amazon does not hide its intentions nor its ambition: it wants improved ties to all of the leading FMCG brands and convince them to reassess their business model. Instead of continued trade relations with the major supermarket chains, they should realize that eCommerce is the future, Amazon believes.

Other supply chain

The most interesting fact is that Amazon is encouraging manufacturers to consider another supply chain, one that does not require products to stand out on the shelf, but that are sturdy and sustainable so that they may be delivered in perfect condition. Manufacturers should no longer focus on pallets, but on individual packaging and obviously, the last mile delivery should be entrusted to Amazon.  This should enable Amazon to more efficiently deliver goods to the consumer’s doorstep within the hour, saving them a trip to the supermarket.

It comes as no surprise the online giant is trying to woo the food brands, because FMCG are the largest section of retail and eCommerce barely contributes 2 % to the American food market despite innovations like Amazon Fresh, Amazon Dash, Amazon Echo, Amazon Go and Amazon Fresh Pick-up.

FOMO

Does Jeff Bezos even stand a chance with this new charm offensive? It seems that the manufacturers are indeed taking him up on the offer, even though it seems equally unlikely that they will want to risk their close ties to Walmart, Kroger and others. However, they do realize that their supermarket turnover is stagnant and they are weary of missing out on the next big thing in case consumer behavior does indeed move online. This is a clear case of FOMO (fear of missing out). Amazon already caters to 300 million shoppers and has even started developing its own food brands.

The other supermarket chains are paying attention to what Amazon is doing. Walmart for instance is even in a very competitive battle with Amazon, as it feels threatened. Millions of dollars are being spent on acquisitions (Jet.com and several smaller start-ups), on app development and the increased development of its own eCommerce activities, like a Click & Collect service.

Devastating price war

Walmart’s actions are also unleashing a devastating price war, resulting in a hearty discussion with its main suppliers last month, to discuss purchase conditions and sales prices. It struggles to meet its “Everyday Low Price” guarantee, because Amazon has a smart algorithm to compare and lower prices. That forces Walmart to demand better purchase deals, although Amazon is not averse to some power play itself. It will kick brands out of its (virtual) store if they are not willing to play the price game (like what happened to Pampers recently).

This puts brand manufacturers between a rock and a hard place, the possible victims of a war between two arch rivals that will spare no one and that has no benefit to the brand manufacturers anyway. What would they stand to gain if they cut out one intermediate party (the ever-present physical supermarket) and replace it with another (all-powerful online platform)? Exactly, nothing. Maybe it would be best if these brands created their own direct sales channel for consumers? It seems so…