Why CPG Brands Need to Look Beyond Amazon
Achilles was unbeatable until Paris shot him in the heel with an arrow. Superman had impenetrable superhuman strength until he was exposed to kryptonite. Amazon seemed invincible in its ability to deliver on its value propositions until the COVID-19 pandemic.
To be fair to Amazon, there hasn’t been a single major online retailer that has avoided the pressure from dynamic coronavirus-related consumer behavioral shifts. The reason why many e-commerce pundits have been gawking at Amazon’s struggles is that most considered the company too big to fail. Fact is, “too big to fail” was proven a fallacy by the 2007-2008 financial crisis, and that’s true even if you control over one-third of all U.S. e-commerce sales.
Over the course of the past few months, Amazon has started to show that it’s the furthest thing from perfect (like every other e-commerce retailer). This article highlights several of the ways the company is struggling during the current global pandemic. CPG brands that are overexposed to Amazon should use this moment of clarity to analyze their digital channel strategy for diversification opportunities.
Online Grocery Waitlist
The demand for online grocery pickup and delivery has been astronomically high because of the restricted living conditions brought about by COVID-19. Online CPG sales in the United States increased 56% year-over-year for the week ending April 18, which places Amazon squarely into a Catch-22 situation. Amazon is the default online retailer in the United States, so it is naturally the first choice for many consumers who want to try online grocery for the first time. But when the coronavirus outbreak began, the company already had over 150 million Amazon Prime members, many of whom were regularly using its online grocery services. That usage only increased because of the pandemic.
Faced with angry mobs of existing Amazon Prime members, the company has been forced to ask new online grocery delivery and pickup customers to sign up for a waitlist. To increase capacity, Amazon has pledged to hire over 175,000 employees, and it has also added over 70 new grocery pickup locations. With Amazon waitlisting new customers, many of them have turned their attention to competitors such as Walmart, Shipt and Instacart, which have seen record app downloads amid the coronavirus outbreak.
Are You Essential?
If I asked you if your brand’s products are “essential,” I’d bet that you would emphatically answer yes, as selling those goods is essential to your livelihood. But does Amazon feel the same way? During COVID-19, thousands of sellers and vendors found out what happens when their brand’s vision and Amazon’s are misaligned. Due to the increased demand of household staples and medical supplies, Amazon was forced to temporarily deny shipments of non-essential goods to its fulfillment centers from both third-party sellers and first-party vendors. Amazon made this unprecedented move to streamline its fulfillment center operations, but that left businesses selling non-essential goods to nosedive into panic. Many were left scrambling to set up alternative e-commerce partners and fulfillment options. Since most CPG categories were not affected, it might seem like this problem shouldn’t be a concern for you. But what happens when the next unprecedented Amazon decision leaves you on the outside looking in?
2 Days…Yeah Right!
The only certainties in life are death, taxes and Amazon’s fast delivery. From the beginning, quick delivery was the foundation of success for Amazon and what it built all additional elements on top of. For Amazon Prime’s 150 million paid members, placing an order and having it arrive on your doorstep within two days was like clockwork. The clock eventually broke, however, when COVID-19 caused massive order volumes, which were paired with supply chain and logistical pressure from a global health pandemic. As a result, Amazon Prime members started to see delivery dates up to a month away. Rather than wait weeks for their goods, previously loyal Amazon customers shifted their spending to other mass retailers like Target and Walmart or to specialty retail websites. It’s unknown how many Amazon customers shifted their spending, but Target reported digital sales growth of more than 275% in the first half of April.
Relationship With Sellers
When Amazon launched 25 years ago, its mission was to be Earth’s most customer-centric company. The definition of “customer” has evolved for Amazon and now includes the millions of third-party sellers that use the marketplace. By paying fees for product listings, fulfillment services and advertising placement, aggregated third-party sellers are Amazon’s biggest B2B customer. Third-party sellers also account for over half of Amazon’s total retail sales, arguably making them one of the biggest cogs in the Amazon flywheel. That being said, Amazon has made several recent decisions that could create tension with third-party sellers. A recent report from Recode found that Amazon’s algorithm has been favoring nonessential items sold directly by Amazon or sellers that use its warehouses over listings from third-party sellers that offer faster delivery options. Additionally, the previous decision to temporarily suspend shipments of nonessential goods created massive revenue losses and added expenses that forced some sellers to turn to Walmart’s marketplace.
Treat Employees Like Family
Every business needs to be constantly reminded that consumers hold the power in the market. Jeff Bezos may be the richest man in the world, but he still has a boss that can choose to fire him at any time by shopping with an Amazon competitor. During COVID-19, consumers are keeping a close eye on everything businesses are doing. This key defining moment will inevitably be called upon for references on how businesses dealt with extreme challenges, and that includes employee safety. With an employee count fast approaching a million, reaching for perfection will not be attainable, but many employees believe Amazon has not done enough to protect them. It will be up to the court of public opinion to decide if Amazon is treating employees like family, and that ruling could ultimately affect the company’s market dominance.
Amazon isn’t perfect, but neither is anyone reading this article or the person writing it. When considering strategies in business, perfection is rarely considered because it is a situational anomaly. Amazon has an amazing digital shelf that any CPG brand should consider within its e-commerce channel strategy, but wrongfully going “all in” on the notion the company is perfect will eventually surprise you when the “too big to fail” fallacy proves itself again.