CPG Manufacturers are starting to express some reservations about the retail sector’s 800-pound gorilla: Amazon.
In a 2017 survey by the Promotion Optimization Institute (POI), 82% of consumer goods manufacturers said they had concerns about doing business with Amazon, up from 68% in 2016. There’s no question that Amazon’s increasing penetration of the grocery category is perceived as a threat.
One Click Retail recently released estimates pegging Amazon’s US grocery sales at $2 billion in 2017, up 59% year over year. That’s equal to an 18% share of all online grocery sales.
“For large consumer packaged goods (CPG) manufacturers, the challenge Amazon presents is just one of many,” said eMarketer senior analyst Patricia Orsini. “They are facing competition from private-label brands and smaller, niche players that have been able to master the art of product placement on Amazon.”
While results of Amazon’s Whole Foods Market acquisition in August 2017 are still playing out, there is little doubt that the deal increased online grocery sales for the digital retailer.
According to One Click Retail, around 90% of inventory from Whole Foods’ 365 Everyday Value private label sold out on Amazon.com during the first week it was available. Additionally, AmazonFresh, a grocery-specific service offering both fresh and packaged goods, did $135 million in sales during the last four months of 2017, a 35% increase over the previous four months, One Click Retail reported.
Other research similarly underscores Amazon’s gains in the grocery space. An October 2017 Feedvisor survey found roughly one-quarter of US internet users had made a grocery purchase on Amazon in the past year.
Feedvisor also found stark differences in grocery shopping between Amazon Prime members and other Amazon shoppers. For instance, 31% of Prime members had bought groceries, compared with 12% of nonmembers. However, only 11% of Amazon Prime members had tried Amazon’s flat-shipping-fee service for CPG goods, Prime Pantry, and even fewer (8%) had tried AmazonFresh.
The low usage rate of Fresh makes sense given that perishables haven’t been a core Amazon product category, and that beverages make up the largest share of groceries sold on the site, according to One Click Retail. The company also reported that cold beverages—like water and soda—were the biggest sales driver in 2017, with around $350 million in sales (up 65% vs. 2016). Meanwhile, coffee took second place, at $325 million. In comparison, dairy, the highest-ranking fresh category, was responsible for around $85 million in sales last year.
Amazon did well in the recently released grocery-focused Retailer Preference Index from Dunnhumby, which is based on consumer surveys and financial performance metrics. Customer preferences were driven more by factors like price and quality than by other measures, such as speed, convenience and digital offerings—all three of which are among Amazon’s strengths. Trader Joe’s limited but well-priced selection helped it take the No. 1 ranking, while Costco, another value-oriented retailer with a curated selection, was in second place. Amazon placed third.
Fresh food may be the defining battleground for online grocery this year, and consumer goods brands have good reason to be concerned. Though Amazon came on strong the second half of 2017, a vast majority of US consumers still shop for perishables through traditional channels.
“Established brands’ longstanding relationships with both brick-and-mortar retailers and consumers are currencies brands need to exploit, especially as regional grocers such as The Kroger Co. and Safeway, along with Walmart, step up their ecommerce strategies,” Orsini said. “The brick-and-mortars need the brands’ buy-in as much as the brands need the retailers—creating promotions that work for both parties is important for both to thrive.”