Amazon Private Label Reduction: Impact on the Supplement Industry
You might have recently seen the following headline…
What the heck is going on at Amazon?
Recessionary Periods = Private Label Sales Volume Growth
While that Amazon news has broad implications for a variety of product categories, I want to focus on what this private label reduction means for the supplement industry? Additionally, does it make “building on Amazon” easier?
But First, I Was Wrong…
“It must be exhausting always being right.” - actual sarcastic Instagram DM I’ve received
I mean even blind squirrels find a nut from time to time, but my predictions don’t always go as I had planned…
In late 2018, Amazon announced its private label accelerator program. It only included a few product categories, but one of the focuses would be on nutritional supplements. It didn’t take long for me to see the writing on the wall that these Amazon private label accelerator brands would be taking major market share from industry brand leaders. I mean how could they not? Amazon was giving these private label accelerator brands super premium marketing levers and exclusive real estate on the platform by cross promoting them against the categorical leaders. Additionally, the quantity of the private label accelerator brands went from a handful to 20 and then to 40 before the end of 2019. Yet…here we are in Q3 of 2022 and those market leaders in the supplement industry probably didn’t even notice the few paper cuts they had gotten over the years from those 40ish Amazon private label accelerator brands.
Amazon private label got bloated
Amazon’s private-label business started in 2005 with bedding offerings named Pinzon. It then expanded into consumer electronics products, but eventually sprawled into just about every other category under the Amazon Basics brand name. To be completely honest, no one (outside Amazon) truly knows just how many private labels the online retail giant has in its portfolio. Some sources have said it could even be more than 1000 brands (offering over half a million SKUs). At face value, that’s a shit load of private label brands (and SKUs). In comparison, Target has about 50 private label brands with Good & Gather being it’s largest SKU count at more than 2000. Similarly, Walmart has about 320 private label brands that offer a total of about 30,000 SKUs.
Amazon Needed To Make a Change
Seeing that Amazon has 3x more private label brands than the largest retailer in the world, it’s likely a sound business decision that Amazon started to drastically reduce the number of items it sells under its own brands. The move was said to be initiated by recently departed 23-year Amazon veteran Dave Clark, who was most recently their CEO of Worldwide Consumer. As a result of that review, Dave Clark recommended the team should focus on bestselling commodity goods, along the lines of Target “Up & Up” or Walmart “Great Value” private label brands. Over the past six months, Amazon leadership instructed its private label team to slash the list of items and not to reorder many of them with discussions reaching the point where a reduction in assortment could be well over half.
Heck, it has even been rumored Amazon had conversations about completely exiting the private label business. This is a huge contrast from a few years ago when Jeff Bezos gave the private label team a goal to reach 10% of Amazon sales by 2022. At the time of stating that, Amazon reported its house brands only account for about 1% of its retail sales. That being said, meeting the standard set by Jeff Bezos was likely the main motivation behind the huge proliferation of private label items.
Why The Change at Amazon?
Amazon is now willing to throw away billions in annual private label revenue because of arguably two main reasons…
More Isn’t Always Best
While private label purchasing has gained momentum again during this current recessionary period, more isn’t always best…especially when you aren’t selling the right products. Many of these private label products have had disappointing sales and they are sitting in warehouses taking up critical space. This is the exact opposite of what Amazon wants to achieve with its private label strategy. It should allow the third-party sellers to handle the low volume long tail needs of customers. Amazon should only create fast-selling private brand items that it can placed in warehouses all over the country to be delivered as quickly as possible.
Antitrust Concerns
The growing scale of its private label business increasingly puts Amazon in competition with other sellers on its platform, angering those sellers and resulting in global antitrust scrutiny. Additionally, it has been rumored that Amazon employees used data from its platform on individual third-party sellers to develop Amazon private label products that compete with those sellers. With more than half of its retail segment revenue (worth 100s of billions of dollars) coming from the nearly two million small- and medium-size businesses that sell there, Amazon must consider all options when there’s increasing questions around fairness of competitive practices. It has become one of those “is the juice worth the squeeze” kind of things for Amazon. Now…I’m not shy about saying that I think all this antitrust stuff (at least under current U.S definitions) is totally blown out of proportion with Amazon.
Here’s what I know to be truth…
Private label is a very small percentage of Amazon’s business.
All global retailers have private label, with most encompassing a much larger percentage of their total revenue.
Retailers would be silly to not look at internal sales data and customer analytics to make private label decisions.
Contract manufacturers are easy to find for all product categories and products are easily copyable in today’s world.
What Does This Mean to the Supplement Industry?
Do I think Amazon completely exits the private label business? No way. That being said, I do believe the news reports that Amazon will continue looking for opportunities to reduce private label SKUs and consolidate private label brands. So, the largest Amazon private label brands, that have exposure to the supplement industry (e.g. Solimo, Amazon Elements, and Revly), won’t be going away anytime soon. The good news is that these Amazon private label brands are mostly focused on singular vitamins or minerals commodity formulations. On the flipside, the vast majority of those original Amazon private label accelerator brands (that I highlighted years ago) are long gone.
Build On Amazon Prospects
With this Amazon news, differentiated supplement brands and/or those competing in any of the premium niches (e.g. sports nutrition, condition-based supplements, or nutricosmetics), should be jumping for joy. While private label penetration has been historically lower for these categories anyways, Amazon is the “crazy guy” in a fight and it’s usually hard to predict what they will do next. But don’t get too excited because…
Remember all that white label (or third-party seller private label products) that got decimated because inflationary costs and supply chain chaos? That will gradually come back to the Amazon platform over the next year.
Leaving on a good note though (because entrepreneurs must always be optimistic):
November 2020 = SmartyPants Vitamins
August 2021 = Zesty Paws
September 2022 = Hero Cosmetics
These are all Amazon-native CPG brands that were acquired for more than $500 million in the last 20 months.
Why do I bring that up?
For a lot of current (or aspiring) entrepreneurs, launching on Amazon is the perfect (fastest, cheapest, and easiest) place to test out product-market fit.
Final Thoughts
“When the world changes around you and when it changes against you…what used to be a tail wind is now a head wind…you have to lean into that and figure out what to do because complaining isn't a strategy.” - Jeff Bezos