Amazon (AMZN) may be at it again! The Wall Street Journal reports the online retail giant is preparing to add groceries such as milk, cereal, and baby food to its Elements private label brand.
Yahoo Finance’s Aaron Task explains that while this fits in with Amazon's strategy, it's not a win-win.
“This is new because it moves them into perishables, which is a whole different ball game and a big challenge. It's an opportunity, but it's also a risk for the company because the execution here is going to be a lot more challenging,” according to Task
Amazon launched the Elements brand in December selling baby wipes and diapers to Prime subscribers. However, in January the company discontinued its Elements diapers after customer complaints.
Yahoo Finance’s Rick Newman points out when it comes to private labels, retailers need to get it right.
“You have to understand there's a difference between private label and generic. So if private label is just...a synonym for cheaper than the name brand and that's all it is…I don't think that's going to get you anywhere,” he says. “Costco (COST) has really carved out a niche for itself with its Kirkland brand which many people consider to be a very high quality brand.”
Other big retailers such as Walmart [Great Value] and Target [Up & Up] also sell products under private label brands.
According to market research firm Information Resources, U.S. consumers spent $120 billion on private label packaged goods last year. That’s a year-over-year increase of 2.1%.
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Task thinks the reported move makes sense especially since just yesterday Amazon said it would offer Prime members free same-day delivery.
“Amazon wants to be your retailer for everything. They started off with books and then they moved into pretty much every other category,” Task notes. "And as you said, they're doing groceries, they announced earlier this week same day shipping. And so that that coincides with this move into private label perishables because if you're getting groceries you don't want them to come in three days you need them now. You don't want them to be sitting in a warehouse or on a truck somewhere. Every retailer in the country certainly is competing with Amazon and this just puts them one step closer to competing more directly with the grocery store, where I think it's only been at the fringe so far that they've had to deal with Amazon.”
Newman doesn't think this is a slam dunk for Amazon.
“Amazon has proven it's the best in the business at getting you stuff that you need sort of quickly,” Newman says. “The price is pretty good...but I think Amazon has made its name on logistics, getting its stuff to you. They can ship stuff to you faster and more reliably than anybody else. They're not necessarily the lowest price provider. We haven't seen yet that they can really beat the big retailers when it comes to big bulk items and now they're doing perishable. So they really have to I think better define what is the value proposition for the consumer, what are you going to get from Amazon that you're not going to get from Target (TGT) or your local grocery store.
Amazon spokesman told Yahoo Finance the company doesn't comment on rumors or speculations
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