Borders. Tower Records. Gamestop. What do these companies have in common? Amazon successfully disrupted each of their businesses (or is in the process of doing so). Amazon started by delivering books to your door, and then moved into music, where it was able to push out major national retailers. Currently, through Amazon Prime, customers can get video games delivered on launch day for 20% less than at traditional retailers, pushing video game stores ever closer to obscurity. And now, it appears Amazon has a new target in its sights: food.
According to multiple sources, including Reuters, Amazon is planning to launch a variety of private label lines for products that you'd likely find in supermarkets. The products will include nuts, spices, tea and coffee, as well as non-food basics like laundry detergent and diapers. Of course, these items will only be available to Prime subscribers, another step in the company's plan of creating a complete commerce ecosystem within the Amazon brand. The company already sells a number of its own-brand products (like the Amazon basics iPhone charger I'm currently using), but this will be its first move into the private label food sector.
Combine this news with last week's announcement that Amazon will partner with Tyson Foods to introduce meal kits and you'll see that Amazon is increasingly invested in making the most of its forays into food. (See Related Article: Are Meal Kits Here to Stay?) If the company is able to successfully leverage it's reputation as the best on price and the best on delivery, its likely that its future expansions into the food industry will be successful, too. Already, Amazon is primed to sell you bulk foods and meal kits for dinner. And you don't even need to get on the computer anymore; if Amazon can convince consumers that they need a Dash button for its own-brand products, the ecosystem will close completely.
Which begs the question: How long before Amazon is offering delivery of fresh produce, picked directly from the farm, to your doorstep via drone? In a day? In an hour? In real time? These questions may seem a bit far-fetched at the moment, but this is Amazon, after all. The company makes its mark by disrupting existing industries using technology, and although food is one of the last industries it seeks to conquer, smart food executives will realize that Amazon can disrupt things in a big way.
This isn't a deathknell for supermarkets, though. Despite Amazon's reputation as being the king on prices, when it comes to food, this title may be undeserved. According to Boomerang Commerce, Target and Walmart both offer better pricing options for beverage and breakfast products. In fact, both Target and Walmart charge about half of what Amazon does for the same and similar products. This is a massive difference for consumers, especially when you consider the program fee for Amazon Prime is $99 per year. Boomerang argues that supermarkets (Target and Walmart, specifically, but I'd be very surprised if Kroger, Publix, Hy-Vee and other major chains aren't in a similar situation) can take advantage of the dollar difference by offering more variety at a similar price point.
As more and more Americans decide to eat local, it will become more and more difficult for Amazon to take over the role of food distributor across the country. That's not to say that it's impossible: the company's history is littered with successful moonshots. But that does mean traditional grocers have time to assess their options. They can also learn a lot from Amazon. Maintaining price advantages, offering online ordering, delivering products to customers' doorsteps and embracing technology are hallmarks of the Amazon method. Grocers can adopt these methods (and develop their own) to ensure that they remain viable entities despite the expansion of e-commerce retailers.
Chris is a business writer and market analyst that focuses on the Markets, Legal and Washington sections of the Food Institute Report. In addition, he assists in compiling data for various Food Institute publications throughout the year. He invites you to contact him via email at firstname.lastname@example.org to talk about anything food-related.
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