Reports that Amazon is branching out into private-label groceries make sense for the retail giant.
In a sluggish market own label is one of the few healthy areas, growing by 1.5 per cent in the first quarter of 2016. Retailers aren’t seen as credible without an own label range, but developing a strong offer takes time and Amazon will face a number of challenges if it’s to succeed.
1. Brand quality, not branding
Retailers have experimented with ‘own-brand brands’ before – Aldi successfully emulates others with products like Snack Noodles and Stackers crisps, while Tesco has experimented with own-label ranges including Daisy washing liquid, Packers Best tea and now its ‘farm’ meats.
Turning a label into a brand is the first challenge. History tells us that consumers can’t be fooled into believing that something is good quality just because it’s well branded, so Amazon’s products will have to live up to their image if they’re to capture the market.
Consumers are becoming less interested in value ranges. Sales have fallen by a quarter in recent months and former favourites like Tesco Value are disappearing from our shelves. Everyone from the discounters to Waitrose now has multiple private label offers to differentiate one as premium; Amazon may find that it needs to follow suit to entice new shoppers.
3. A narrow subscriber base
Only opening its offer to Prime subscribers gives Amazon a narrow – and affluent – customer base; just the kind of shoppers willing to pay for recognisable brand names. That’s not to say ABC1 consumers don’t buy private label – premium own label ranges do very well across Waitrose, M&S and Sainsbury’s. However, if its products are middle-of-the-road then Amazon could fail to turn its users to its grocery selection.
Amazon’s online platform will make it difficult for consumers to familiarise themselves with its products. Every interaction consumers have with bricks and mortar retailers reinforces their brand: the plastic bags, the shelf stickers and delivery trucks all help build own-label credibility in a way not open to Amazon.
While going for different names for its ranges might be an attempt to present its goods as branded, Amazon could struggle to capture consumers’ loyalty long-term as it has to win in every category.
5. A competitive market
Amazon’s new offer might differentiate it in the US, where private label ranges are rarer, but in the UK they make up half the market. By also selling Morrisons goods Amazon could end up in competition with itself as consumers migrate to what they already know. With Amazon Fresh, Pantry and Prime Now already available it’s at risk of confusing shoppers – streamlining and simplifying its grocery offer could be a wise move in coming months.