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Amazon Targets the Drugstore Category

Amazon Elements
Photo: Amazon
Amazon Elements launched with fanfare and strong sustainability credentials to the US in 2014, but within months discontinued its own brand nappies after these failed to meet Amazon's own stringent quality standards.

Drugstores could be the latest European target as Amazon continues to develop its capabilities across new categories. Lebensmittel Zeitung reports that the retailer is planning to introduce a basic assortment of private label lines early next year, which are set to include nappies and other household paper items as well as possibly baby food and personal care.

At the same time as developing its own private labels, Amazon is reportedly looking to leading retailers to establish supply agreements for their private label lines and has set up a team at its European headquarters in Luxembourg to work on this. Aldi and Rossmann are said to be primary targets.

Separately a CNBC report recently suggested that Amazon may even be looking to the pharmacy industry as the next one to conquer, including the complex area of prescription drugs.


New Enthusiasm or a Short Memory?

As it continues to grow its FMCG business with the rollout of Amazon Fresh and Prime Now (as well as trials of Amazon Go and Amazon Fresh Pickup) it makes sense for Amazon to add new categories that can be sold alongside grocery. Fast-moving categories such as drugstore items fit well with the online trend towards rapid delivery and target many of Amazon’s existing Prime members, such as those with young families. Capturing this market could help to drive Amazon’s flywheel by increasing basket size and volumes and it is an area where investment by the retailer makes sense.

However, much as it might be a wish of Amazon’s to grow in this category, we see this as a mid to long-term vision with a number of barriers that need to be overcome in the short term. Firstly, private label lines are not yet a known area of expertise for Amazon, but more one that it is taking some time to get right. Its Amazon Elements line, launched with fanfare and strong sustainability credentials to the US in 2014, targeted the baby category and was exclusive to Prime members. However, within months the retailer pulled its Elements nappies as these failed to meet its own stringent quality standards, leaving only baby wipes and a more recently introduced range of vitamin supplements. Similarly, whilst it is true that an interesting and exclusive line of Wickedly Prime snacks recently appeared on its US site, it is clear that Amazon’s private label grocery lines remain in the embryonic stages.

With this in mind, it therefore appears that the move by Amazon to partner with well known retailers and their established private label lines has far more short term potential. Amazon Fresh has established wholesale agreements for private label grocery – for instance with Morrisons in the UK, which highlighted the benefits of this arrangement in its most recent quarterly update presentation. So could it also make sense for Amazon to sell private labels from well known retailers such as Rossmann and Aldi?

It is certainly a move that makes sense for Amazon, but the question is how many brands and retailers will be willing to partner in this area and how much do they stand to benefit? For brand manufacturers the answer is simple as many are showing themselves increasingly keen to work with Amazon. However, private labels and established retailers are trickier. Those with a longer memory might point to Amazon’s failed shop in shop cooperation with German drugstore retailer dm, which listed 1,700 private label lines on Amazon’s German site from 2011 to 2013. After two years the trial was ended with reports that revenues from dm’s store only just exceeded those of a bricks & mortar location and dm itself concluded that “consumers prefer to buy drugstore products in stores”. How much can Amazon persuade retailers that things have changed since then? If Amazon needs these partnerships in order to succeed, it could find itself having to work extremely hard.

Topics: Amazon