Pando

Amazon is coming to eat your brand

By Kevin Kelleher , written on May 18, 2016

From The Disruption Desk

First, Amazon took on the brick-and-mortar retailers, and then it seriously challenged them, and then it disrupted them - in pretty much every definition or mis-definition of that term that has emerged since Amazon was founded.

Only then did Amazon go for blood.

When Amazon goes for blood, it doesn't binge. It laps like a killer kitten, takes the blood out more slowly than its victims ever expected. This is not bad, the victims think, why one could learn to live like this. Death by Amazon is a snackable feast.

So long as its victims are dying, Amazon can collect data on the exact pacing, symptoms, and other salient details of the dark avenues that lead to a distant but certain demise, as long as it can just keep that data inside its pocket. A9 wasn't a product, it was a warning: “We know where you've been, O Captains of Industry, and we know where you'll go.”

Amazon, the premier corporate predator, knows where its next meal is coming. Snack. By. Snack.

Think of an old-school retailer. One whose CEO you can imagine sitting back and admiring the company's name perched up high on some brick-and-mortar edifice in some sunnier decade. Amazon’s logoless, anonymously located warehouses were so many ninja assassins doing their stealthy kills, paper cut after deadly paper cut, until Amazon could lay claim to milestone after chilling milestone.

We saw Amazon overtake Walmart as the biggest retailer last year. We know e-commerce is eating into retail. But half of the growth in e-commerce went to Amazon last year, which was just another year when few e-commerce startups found funding, and some of the few in earlier years went south. As retail goes online, much of online moves into oblivion because of Amazon.

What's less notable is that the more people shop on Amazon, the more stuff flocks onto the site to get bought there. At the end of 2015, according to ExportX, Amazon was selling 488 million unique products in the US alone, up by 235 million goods from 16 months earlier. And yes, while many of those new products aren't likely to be top notch (maybe even relisted from Alibaba), they are to retail what content mills were to media.

Yet like the media publishers, retailers slumbered in an ignorance borne of an era that had never seen anything close to the likes of The House That Jeff Built. Anyone who has entered Amazons gunsights in the past decade has nothing but denial to blame if they later on see their CEOs apologizing to investors because Amazon ate their lunch, too, in its insatiable appetite for corporate lunches.

It's not just retailers anymore. It's now consumer-goods manufacturers. Because Amazon is starting to get aggressive in the private-brand business.

As a broad strategy, this is nothing new. You may have bought a wireless mouse or a HDMI cable through AmazonBasic since it was launched in 2009. Congratulations, you're a charter consumer of Amazon's next industry-eating business. It's more likely you're a Prime subscriber who bought an auto-detailing tool, or a camera case, or a backpack, as Amazon has quietly expanded its off-label offerings into other industries.

This week, the Wall Street Journal reported that Amazon was about go full on with private brands to sell things like fruits and nuts and tea and diapers and cosmetics. Shit you buy, in other words, and use without thinking, as long as you don't think about brands.

One of the reported suppliers is TreeHouse, owner of Flagstone, which if you've ever tossed fruits and nuts, proffered by a startup and packaged by a corporation, into your mouth, you may not know. But you know it. It's inside you. TreeHouse also bought the private-brand entity of ConAgra (aka, ChefBoyardeeReddi-wipSlimJim, hopefully not inside you) this year at a 50 percent discount to what ConAgra paid three years earlier. The owner of some of America's grotesque brands couldn't make money from it. TreeHouse, thinking it could, saw its stock plunge 6 percent on the news. This is coming to a Prime promotion near you. Enjoy!

Amazon has as yet to confirm or deny the Journal report, let alone utter a word about the possible existence of its new baby; and considering how well thought out the Journal's story was, you just have to wonder whether Amazon is not ready to tip its hand. 

This has led to some speculation that Amazon is planning this as a lynchpin of its grocery delivery strategy, which I wouldn't discount, but I'd also bet Amazon is not thinking of it strictly that way - that is, Amazon sees this as just another Amzon arrow into its users' hearts, wheter these private label goods arrive the same day, the next day, or in two days. Amazon only cares if you do. Amazon just wants to be your pusher.

There is a very good reason for Amazon to do this, just as there is a reason why it wouldn't want to tip its hand about its doing so. Think of personal finance. Intuit in the late 1990s had a long-shot chance to become a front-end interface that turned any (then hated) personal bank into a back-end service, and it chose the safer route of integration. Ten years later, PayPal had another long shot to make an end run around the (still hated) credit card companies and passed. Look where those two companies are today, and weep.

Amazon isn't one for tears, unless we're talking about drinking the tears of dying companies. And I can't help but think that is, once again, it's business plan here. Banks have only grown more powerful in the past decade or two, and consumer food packagers only less so.

The private-brands sector of the consumer-goods market is not a business topic that most consumers think about on a given day. As a whole, the business of consumer-packaged goods has, long before Don Draper ever sold that first fur coat, been more hell-bent on getting consumers to think about how a product felt deep down inside that it has on actually creating a product worth buying. In other words, consumption may be shaped by base desires like hunger or even need, but the even baser desire that drives mass marketing has always been branding.

Branding is so ineffable that even by the insanely anal GAAP accounting standards, while conceding that it is in fact an asset, insists on categorizing it as intangible. It's that weird, unshakable, but ultimately unlikable charisma that you saw in elementary or junior high school in someone two or three years older than you. But when you grew up, you wondered what you saw at all.

Private brands also have been around for decades, appealing at first mostly to price-conscious consumers who wanted what they knew to be a commodity like milk, but knew equally they shouldn't spring for the premium brand, despite any halcyon ads of happy cows lazing in green fields. We may have aspired to cars, or clothing, or in time smartphones. But not to better milk.

Private brands always positioned themselves as the anti-brands. But in the past decade or so, a couple of shifts have occurred in the consumer mindset to enhance that allure. The first was e-commerce itself, which weaned many consumers off brand loyalties because it offered low prices as well as the freedom to explore and compare offerings. Or, in the best-of-both-worlds scenario that few consumers had ever expected, both. That is, a better brand at a better price.

Then, thanks mostly to social networks, the consumer in North America and Europe finally grew up. In both regions, heavily promoted brands are less trusted while private brands have grown more popular, according to a 2014 Nielsen survey. Private labels make up 45 percent of dollar-weighted sales in Switzerland, 41 percent in France and 34 percent in Germany. In the US, it's only 18 percent, but 81 percent say they buy them to save money and 69 percent say the quality of private-label goods have improved over time.

For Amazon, this isn't just another hole in which to plunge a tentacle, it offers a higher-margin opportunity in older, yet still huge markets where retail margins have thinned. It's an insurance policy on AWS just in case that lucrative annuity starts to pay fewer dividends. But like AWS, and unlike its fashion business, it may accrue margins over time, provided it catches on.

We in the media are given to lamenting how a gigantic platform – say Google News, which we hated when it arrived; or Facebook's Instant Articles, which we hated more silently last year – is co-opting the ancient designs of the great ones who built our industry. But in the same way Google and Facebook made big publishers less powerful, Amazon's platform is making consumer brands less and less relevant.

We're seeing the best business minds of the past few generations eaten by code. And the best engineering minds of the current generation devoured by management. Who are devoured in turn by investing. All we can do is wait to see what follows, which right now is probably a gigantic platform like Amazon.