Amazon: CEO Jeff Bezos is willing to take risks in new markets
Amazon: CEO Jeff Bezos is willing to take risks in new markets
A view from Chris Pearce

Why Amazon is making the risky move into perishable goods

Forget the fuss over the forthcoming arrival of Jeremy Clarkson and gang's Grand Tour, Amazon is about to make a far more powerful statement of...

 The Wall Street Journal has reported that Amazon is about to roll out new lines of private-label brands that include its first push into the perishable goods market.

And if you agreed with the majority of other commentators on social media that Grand Tour was a disappointing name for the Top Gear replacement, what to make of the chosen name for its range of foodstuffs – ‘Happy Belly’ – or ‘Presto!’ for its range of laundry detergents?

In truth, Amazon has been spinning out new and exotically named private labels for years, such as its Pinzon linens and Lark & Ro fashion lines, and has been secretly working on the food launches for some years – it previously applied for trademark protection for foods including pasta, granola and chocolate. But this move marks the first time that it has moved into perishable goods.

Amazon the risk-taker

By launching the products, which could be available as early as next month, Amazon is exposing itself to some element of risk – it puts the company at the mercy of the quality of its manufacturers. This is something it has had to previously acknowledge with its Elements baby wipes range, when it pulled the goods shortly after launch, citing design flaws. Moreover, any recalls – or worse, health scares – could seriously damage its entire corporate reputation.

But Amazon is a company that isn’t afraid of taking the odd risk (just ask Top Gear's Oisin Tymon) and it clearly believes the benefits could be immense.

Worth over $2.1 trillion, the global food market is huge – and, in the US, figures suggest that consumers spend over $80 billion on a year private-label foodstuffs, which also account for one in every three dollars spent in the consumer packaged goods market in Europe.

By launching goods under a private label, it can save costs of marketing and brand development and ensure that all profits go straight back into the company.

Using data to undercut rivals

But where Amazon has the particular advantage is in its vast wealth of data – it has been selling foodstuffs from other brands for more than a decade and can quickly draw upon this to deduce what works and what doesn’t, and what price point it can set to undercut its rivals.

Witness, for example, the way in which Bloomberg reported how Amazon monitors the best-selling products on its platform, using the example of a laptop, and creates its own version at a considerably lower price.

While the products will only be available to the 50-million strong members of the Amazon Prime subscription service, it could potentially give the service a boost as shoppers increasingly do their weekly shopping online. It’s likely, then, that a lot of retailers, as well as FMCG brands, will be rightly concerned at Amazon’s latest audacious move and will be watching closely.