Why Amazon Would Want CPG Companies To Go D2C

Jamie Grill-Goodman
Editor in Chief
Jamie goodman

Amazon has invited CPG companies, including General Mills and Mondelez, to a three-day gathering in Seattle in May, according to Bloomberg. The meeting is expected to try to persuade brands to ship direct-to-consumer, by-passing retail chains. Attendees to the event will tour an Amazon fulfillment center and hear from Jeff Wilke, Amazon’s worldwide consumer chief.

An invitation to the event obtained by Bloomberg reads: “Times are changing. Amazon strongly believes that supply chains designed to serve the direct-to-consumer business have the power to bring improved customer experiences and global efficiency. To achieve this requires a major shift in thinking.”

“Amazon’s bold move to convince the world’s biggest brands to sell directly to online shoppers should come as no surprise to anyone in the industry, and it is highly likely that Walmart, Costco and others saw this coming," said Tushar Patel, CMO, Kibo. "At the end of the day, we believe the decision will all come down to price, shipping times and fulfillment. In a recent survey, we found 70% of consumers said price is the most important factor when making purchases online with product brand being the second most important factor— influencing 12% of consumers—and retailer brand the third most important factor at 6%. This obviously tells us that consumers will choose pricing over a retailer brand if they can obtain their desired product at the time required."

The question remains what Amazon's interests are in this meeting, since it is retailer that sells products. It is possible Amazon may want CPG manufacturers to transform into marketplace vendors in Amazon's fulfillment capabilities. If CPG brand manufacturers are selling direct, Amazon may be able to get them to sell through Amazon.

"The primary opportunity / threat for retailers and brands alike lies in the marketplace," said Jenn Markey, VP Marketing, 360pi. "Marketplaces let retailers build that endless online shelf without the cost and risk associated with physical stores. Brands can leverage marketplaces as 1P sellers or via 3P sellers and marketplace sellers aren’t typically beholden to one retail channel - and brands would be wise to keep it that way when Amazon “comes-a-calling”. So the marketplace, or digital department store, helps create a new, much more level online playing field for all parties." 

As more retail look to transform their brick and mortar locations into fulfilment centers with ship from store capabilities, Amazon may also be seeking to overcome this new competition in its primary area of success.

"No matter what decision comes out of the Seattle event in May, brick-and-mortar stores will still be a major player for selling direct to consumers," said Patel. "We believe brands will stand to benefit from leveraging fulfillment best practices of big box retailers by utilizing locations, warehouses, and logistics to implement options like buy online, pick-up in store, return to store, or ship-from store for their consumers. These brands have inherited channels they did not have before and can realistically compete with Amazon if they continue to focus on price, shipping and order fulfillment.”

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