“How rude!” That is exactly how thousands of vendors felt last week when they didn’t receive their weekly purchase orders from Amazon. Some vendors were told this was a glitch, while thousands of others were notified that the move was permanent, and that Amazon decided their products would “have more potential sales” if sold on Seller Central.
If you follow the digital CPG community, these lack of purchase orders and “breakup” emails set off a wave a panic throughout the industry. Even those brands that weren’t affected are wondering what’s happening and if they’ll be next.
Why Now, Amazon?
For 25 years, Amazon has continuously used a growth driver called the flywheel strategy. One of the main inputs of this strategy is to continuously drive selection. As Amazon added vendors and those vendors added selection, the flywheel began to get too challenging to manage without a major change. Amazon knew this was happening and started working on a plan years ago to improve its Seller Central platform. Though these improvements have been rolling out more frequently, many vendors did not notice what this meant until they were directly hit by Amazon’s supplier rationalization program.
Amazon CRaP 101
Amazon has begun assessing vendors based on rationalization metrics such as the popular acronym “CRaP,” which stands for “Can’t Realize a Profit.” This term was created by Amazon’s finance team to describe items that are structurally unprofitable for the company to sell on its marketplace.
Recently, the CRaP list has become a battleground for Amazon and the CPG brands they have wooed for years. By nature, consumables are one of the biggest categories at risk for ending up on Amazon’s naughty list. This is due to their low per-unit prices and associated hefty shipping costs, which create a low to nonexistent margin environment.
Seller Central “Purgatory”
If you’ve been asked to shift your products to Seller Central, you’ll be relieved to hear that the process isn’t as dreadful as it may seem. Amazon has been making major improvements to the Seller Central platform for years. These include creating an advertising platform that’s almost identical to Vendor Central’s and improving Brand Registry controls. Reality is, many CPG brands should have opened a Seller Central account on their own a long time ago.
Embrace the Hybrid Model
Even if you didn’t miss a purchase order or receive an alarming “breakup” email from Amazon, you need to assume that your relationship with Amazon can change at any time. Because of this, you need to open a Seller Central account as soon as possible.
The decision to sell both to Amazon as a first-party vendor (1P) and on Amazon as a third-party seller (3P) is known as the hybrid model. The reason brands leverage a hybrid model is because each platform has its own mutually exclusive benefits:
- Amazon Vendor Central: Lower fees and more advanced marketing tools
- Amazon Seller Central: Greater control of pricing and inventory and better analytics
For CPG brands, the hybrid model provides an opportunity to act as a nimbler seller and minimize lost sales. As a vendor, it can be difficult to smooth unstable supply chains from spikes in demand, quickly launch new products and seasonal items, and sell items that are structurally unprofitable in the wholesale model.
Amazon “One Vendor” Coming Soon…
These recent moves from Amazon could signal another change coming soon. Recode first reported in late 2018 that a rumored “One Vendor” system, which would merge the Seller Central and Vendor Central platforms, was in the works at Amazon. This singular system could mean that Amazon may soon determine whether a brand will be selling 1P or 3P on a per item (ASIN) basis.
Recode also noted in their article that a recently adjusted Seller Central guideline could be a precursory move to Amazon One Vendor. According to Amazon’s adjusted guideline, “If any of the Brand’s products are sold by Amazon, the Brand may not also sell those products as a Seller in the Amazon store.” With only one system, Amazon could essentially force Vendors and Sellers into a hybrid model by their determination.
When thinking about this dynamically evolving Amazon landscape, I like to apply Seth Godin’s quote that states, “Change almost never fails because it’s too early. It almost always fails because it’s too late.” These recent Amazon moves mean that CPG brands need to take action…and fast. If your brand got kicked off Vendor Central, then it’s time to implement a winning Seller Central strategy. Alternatively, even if your brand hasn’t been affected yet, it’s likely time to investigate how you can deploy a hybrid model.
As for Amazon One Vendor, there is still no official launch date, and Amazon is remaining tight-lipped, even denying that such a program exists. Regardless, CPG brands need to stay alert by diversifying their digital channel partners and growing direct-to-consumer website sales.
Joshua Schall, MBA has an 11-year background in the emerging and intersecting CPG/FMCG categories of functional food and beverage and nutritional products.
He currently is the owner of J. Schall Consulting, an Austin, TX-based boutique management consulting company that focuses on digital growth strategies for CPG/FMCG brands that range from pre-launch to portfolio companies with $500M in yearly revenue.
Joshua enjoys an active healthy lifestyle but still finds himself spending way too much time scanning social media and digital grocery aisles for new consumable brands.