How the Whole Foods and Amazon deal could affect brands
Melissa Sonntag is a member of the Content Marketing Team at Repsly, Inc., a dynamic SaaS company that aims to make work simple, social and fun. A passionate reader and writer, Melissa enjoys writing pieces that can serve to educate and inspire people from all corners of the business world.
Amazon’s Whole Foods acquisition is news that surprised some and excited many. One of the largest online retailers in the world will now have more than 450 brick-and-mortar locations and speculation about what this could mean for neighborhood Whole Foods stores is everywhere. Will they turn into distribution centers for Amazon delivery services? Will the shelves be populated with organic snacks on one aisle and Kindles on the next? Alexa showrooms? A data-driven shopping experience that combines reality with the virtual? All of the above?
While the rest of the world eagerly anticipates what the deal will bring, there is one faction that may not be feeling as optimistic: the CPG industry. The very companies whose organic cold brews and all natural energy bars populate Whole Foods’ shelves could be the ones to experience the most significant upheaval in the process of the deal.
Food manufacturers are fearfully remembering Amazon’s disruption of the book industry, which completely upended publishers and forever altered the way people buy books.
Still, there are many differences between the Whole Foods acquisition and Amazon’s industry-changing influence on bookselling. For one, Amazon is not looking to completely take grocery shopping out of the store and onto a smartphone (which they’ve already tried with their lackluster AmazonFresh service). Rather, they may use these physical locations to bring aspects of the online shopping experience into the real world. This is actually an exciting prospect for brands that sell through Whole Foods, as long as they are prepared to adapt to the major changes that lie ahead.
Here are some of the possible pros and cons of the deal for CPG brands, as well as a few tips to stay above water.
Pro: Data-driven shopping
The potential for a data-driven shopping experience could actually help some brands make more sales. The idea of “presence marketing” — combining online and offline shopping analytics based on a person’s past purchases and tracked movements throughout the store with cameras and sensors — will be a huge win for companies that have diversified product lines.
Picture this: A shopper throws a box of gluten-free pasta into his cart, and his phone instantly lights up with a notification telling them where to find the same manufacturer’s delicious new spicy tomato sauce in aisle 4.
So what does this mean? Diversification of product lines matters now more than ever. Brands selling only one or two products will quickly drown within an expanded marketplace. Having a diverse product line is beneficial for many reasons, and the ability to cross-merchandise your products both in stores and online will provide a leg up amongst the competition.
Con: A shift in marketing strategies
A shift to an omnichannel shopping experience will cause disruptions in the strategies companies use to market their products. Trade marketing, or B2B marketing, will become increasingly more important.
With a mega-corporation like Amazon now influencing Whole Foods’s shelving decisions, new or emerging brands will need to not only focus their marketing efforts on the consumer, but on the retailer as well. While it is easy to sign up as a seller on Amazon, convincing both Amazon and Whole Foods that products deserve shelf space is another story. Brands will need to establish legitimacy and a customer base before even thinking about making the jump from the virtual to the physical store.
Brands can focus some of their efforts on trade marketing by investing in product branding, attending B2B events such as trade shows, and offering trade promotions to retailers.
Pro: Virtual shelf space
Piggybacking off of that last con, however, is a pro. The combination of online and offline stores gives smaller or emerging CPG brands a better chance of getting in front of consumers and establishing that critical customer base. Fighting for shelf space in retail locations can be tough, and anyone who has submitted a product application to Whole Foods knows it isn’t always a walk in the park. But online, there is infinite shelf space.
Brands that aren’t able to get onto Whole Foods’s physical shelves now have an option to get onto Amazon’s virtual ones in this new omnichannel shopping experience. The more demand a product receives in the online marketplace, the better leverage it will have to argue for physical shelf space.
Con: More competition
With Amazon by its side, Whole Foods will be in a prime position to increase revenue from its 365 brand. With the help of the online retailer’s extensive resources and budget, the grocer will be able to reduce supply chain costs and invest more in the brand’s quality and perception.
This could be bad news for competitors of 365 products — especially for small, private brands with very little pricing power. If the 365 brand is able to provide quality products for cheaper prices, this will leave small brands in the tough spot of deciding where to cut costs without taking a hit to their revenue.
For these companies, their strongest weapon in this battle will stem heavily from customer loyalty and brand perception. Any brands that may be hit hard by this change should strongly consider investing time and money into branding right now so they are not washed away with the tide as the 365 brand gains more market penetration.
Brands can do this by creating brand ambassador programs to raise brand awareness and community engagement, hosting or attending events, creating strong customer alignment, and constantly engaging both online and in the field with their target customer base.
Though no one can be certain what Amazon has planned for the future, planning ahead now and fortifying a brand for what’s to come is of the utmost importance in this age of uncertainty. However, regardless of what lies on the road ahead, one thing is for certain: Amazon is ready to give traditional retail a run for its money.