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With Amazon capturing so much of the online grocery market and having the most robust technology for brands to launch and grow the channel, it’s usually an easy choice for grocery brands to invest in this channel in the early stages of their digital transformation.
But that doesn’t mean there is not a lot of complexity. Amazon’s Fresh grocery delivery program is run separate to its marketplace in many ways, with a separate buying team, onboarding process, and marketing tools. For example, if brands want to run paid search campaigns beyond the basic Sponsored Products ad type, they need to commit ad spend with Amazon’s internal managed service team rather than implementing their own advertising strategy like on the main Amazon platform.
Not the only game in town
Amazon is currently the leader in the online grocery war, but its position is being challenged by both new and old competitors.
Data is from the April 2020 "eMarketer Ecommerce Survey" conducted by Bizrate Insights. 1,070 US ... [+]
Walmart is rumored to be imminently launching a Prime-like paid membership offering, according to Recode, with the key benefits including unlimited same-day delivery of groceries from Walmart Supercenters. Even Uber is reportedly getting into the business of grocery delivery this month. While Amazon still has the home turf advantage, competition is heating up.
Amazon leads tech enablement among grocery peers
Brands are generally willing to invest in new channels, with two criteria: that shopper activity is high (and ideally accretive to the brand’s other sales channels), and that technology and services exist to produce a healthy return on investment.
The latter requirement is where some brands have had trouble with new channels, with many retailers and marketplaces not offering APIs for key growth areas like advertising, product listing, and general channel management.
Amazon generally offers robust APIs in these areas while other grocery retailers are catching up.
- Walmart grocery pickup: self service advertising API will be available in 2021. To add or update product content, brands must also work with a third-party product feed solution (limited to a few providers) to host the content.
- Instacart: advertising API is currently in beta. Brands face challenges with a lack of product-level performance reporting, making it tough to justify ad spend in many cases.
- Costco: advertising API will be available later in 2020 through ad-tech provider Criteo.
- Kroger: no API.
Amazon needs to consolidate its various grocery programs
Compared to the core Amazon marketplace and retail platform, Amazon Fresh does have more limitations around advertising and maintaining product content.
Todd Hassenfelt, senior director of e-commerce at Simple Mills, says that there are data transparency challenges for brands selling on Amazon Fresh. Amazon Fresh does not include data points that are available to Amazon.com sellers and vendors like repeat purchase behavior, market basket analysis, real time sales, and other useful data points.
Hassenfelt also finds the advertising reporting to be lacking compared to Amazon’s main advertising platform, and can leads to lower investment from brands.
“By not having the same access to data for Fresh as brands do for the Amazon.com Retail platform, it is more difficult to unlock funds for incremental investment from Finance and C-suite leaders,” Hassenfelt says. “Providing data on what percentage of sales on Fresh (F3) are truly incremental vs. cannibalizing the Amazon.com Retail platform could unlock more incremental investment from brands.”
In addition, Fresh (F3) should accelerate any possible plans to expand their Fresh FCs east of Denver to allow brands to have a Direct option for Fresh POs to eliminate the time to set up new SKUs if not already in one of Fresh’s Distributor partners. Simple Mills has had consistent communication with Fresh (F3) personnel to address some of these concerns.
Scaling up
Halee Patel, senior director of e-commerce at Califia Farms, says that another challenge with Amazon Fresh—despite being the largest online grocery player—is having enough volume to justify investment, which Patel attributes to Amazon carefully curating their expansion plan. CPG brands need to be invited to sell on Amazon Fresh, and Amazon controls the availability of inventory. In some cases this might mean that a brand’s products are not available to all zip codes.
Many grocery brands also sell to Whole Foods, sometimes independently of Amazon.com or Amazon Fresh, and wonder how the two channels will be integrated in the future. Patel believes that Amazon will attempt to consolidate all purchasing needs through one application, whether it be Amazon.com, Whole Foods Market groceries, Fresh delivery, and Prime Now. This might also mean consolidating the current advertising functions across each platform. “Only time will tell but it’s at least what many of us in the industry are hoping for,” Patel says.
Simple Mills’ Hassenfelt agrees that the various entities will merge and meld over time, adding that Whole Foods’ private label products could be better distributed through Fresh, creating a national online footprint for these products.
One Amazon program that continues to create confusion for brands is the Prime Pantry program. Hassenfelt says that further clarity around whether or not the Prime program will co-exist with Fresh would have a big impact for many brands on how they invest. “Pantry ASINs (Amazon Standard Identification Number, Amazon’s equivalent to a SKU) are different than Retail/Fresh ASINs, which can cause some issues for customer service teams approving purchase orders. Also, as Simple Mills can attest, Pantry product page content can be a challenge to maintain.” Simple Mills products are offered on Amazon.com, Fresh, and Pantry, and efforts need to be divided between these platforms to maintain great customer service across all three.
Playing favorites with retail channels
One question that many brands selling on Amazon as well as to brick-and-mortar retail partners ask is around how much to promote each channel partner to potential customers. Adding to the dilemma here is the fact that many CPG and grocery brands face lower overall profitability through their digital channels. But there’s no denying that consumer preferences are on the move. Research firm Inmar reported in May that nearly 80% of consumers polled reported shopping online for groceries after the COVID-19 outbreak, twice the number as before the pandemic.
Sri Rajagopalan, the founder of startup supplement brand Zenfuel and a senior executive who previously led e-commerce and digital transformation at Revlon, Johnson & Johnson & PepsiCo, said in a recent interview that brands should use the same model as their would in their in-store Strategic Action Planning (StrAP) process. “Most brands have a extreme discipline when it comes to how they model their in store business model of 30,000 plus distribution points,” Rajagopalan says, “It comes to two things, one is advertising and sending the consumer to the store, and the second is the discipline of a chain-level, week-level promotional activity once they send them to the store. So discipline is built into the company through a StrAP plan and through a quarterly business review cycle… Digital should be no different.”
Now it’s up to Amazon, and the other online retail players challenging its dominance, to supply the data and insight that grocery brands need to justify increased investment in these channels.
