Amazon To Take On Grocery Chains With Private Label Products

Amazon (NASDAQ:AMZN) is reportedly preparing to unveil its own private-label brand for foods and household items. The Seattle-based online retailer plans to sell private label nuts, spices, tea, coffee, baby food and vitamins, according to a report in the Wall Street Journal. Amazon is expected to introduce the new lines in the coming weeks. Sources are saying that Amazon could start rolling out these products as early as end of May or early June.

The products will only be available to Amazon Prime members, who pay $99 a year for inclusion in the program. Amazon wants to attract as many Prime members as possible. According to Consumer Intelligence Research Partners, Prime members spend on average about $1,100 per year, compared with about $600 per year for non-members. According to the research firm, there were 54 million Prime members in the United States at the end of 2015, roughly 21 percent of the U.S. adult population.

Amazon’s long term goal is to become a one-stop shop for consumers. Adding private label grocery products may enhance consumer perception that Amazon is where they can go to get the things they need every day. Amazon is already the go-to choice for the connected Millennial generation. Millennials, who are now in their 20s and early 30s, are now America’s largest living generation.

Some grocery store retailers are worried that Amazon may be able to undercut their prices with the new lines. The private label means the item is likely to be cheaper than similar brand name products. According to study from Market Track, 88 percent of consumers say they buy private label products. Roughly 80 percent say that if they have to make a decision between a private label and a national brand, and the private label brand has a lower price, they go for the private label.

For grocery chains, private label brands are a big money maker. The products are typically manufactured in the same plants as name-brand items but are labeled with a store brand. This allows stores to avoid the costs of advertising the products, allowing the items to be sold for less.

Amazon tried private label grocery items before, in late 2014, with a line called Amazon Elements. Elements did not catch on with consumers and the company cancelled the line roughly a month after launch. Amazon already sells home goods, like bed sheets and knife sets, under its Amazon Basics brand. Target and Wal-Mart expanded into private-label products over a decade ago.

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