Last week, e-commerce giant Amazon.com Inc (NASDAQ:AMZN) announced its plans to “broadly expand” its collection of private-label brands to include grocery items like milk, cereal, baby food and household cleaners to name a few, per The Wall Street Journal. These items will be part of Amazon’s in-house brand, Elements.
Earlier in May, Amazon reportedly received trademark protection for more than two dozen product categories, including soup, pasta, coffee, vitamins, water, pet food, razors and cleaning products. Previously, Amazon has sold diapers and baby wipes under this brand.
Amazon’s Elements will ensure that the quality of the products and provide information about its sourcing and ingredients. This is particularly important as consumers are becoming increasingly aware and concerned about a product’s quality.
Amazon’s recent announcement of one-hour food delivery service also makes sense for the company, which will now be a part of the lucrative generic business.
Why Expansion in Private-Label Business?
Private labels offer higher profit margin but cost consumers less, making them a vital business for mass-market retailers.
Amazon’s planned expansion in the private-label business is similar to brick-and-mortar retail stores that sell name brand as well as store owned products. Major retailers also sell their own private label brands to boost profit margins and improve selection. Some such labels are Costco Wholesale Corp's (NASDAQ:COST) Kirkland line; Target Corp's (NYSE:TGT) Archer Farms and Up & Up lines; Wal-Mart Stores's (NYSE:WMT) Great Value, and Private Selection owned by The Kroger (NYSE:KR).
How Will the Other Retailers Be Affected?
Though every major grocer has its own private label brand, Amazon’s efforts might raise concerns in the industry because of the power it wields in the online retail business. Moreover, consumers are nowadays using alternative supermarkets to suit their choice. So if they purchase significantly from Amazon brand, it would hurt profits of other retailers.
However, it is also not sure that Amazon would easily set up its brand name in a competitive market. Also, Amazon’s new brand might take time to gain consumers’ trust. Amazon holds a Zacks Rank #3 (Hold).