Amazon Changes & How They Affect Amazon Ungating Services

Amazon is going to start selling its own brands of snacks, diapers and detergent– a move lots of traditional retailers have already made.

But Amazon isn’t a traditional retailer, so this move could be very meaningful for Amazon and its competitors.

The e-commerce powerhouse will soon begin selling its own packaged goods exclusively to Amazon Prime members under brands like Happy Belly and Mama Bear, the Wall Street Journal reports.

Amazon already sells things like electronic accessories, stationery and even clothing under a variety of its own brand. Now it’s going all in on groceries and household products.

While some people will point out that so-called “private labeling” is nothing new– food market and big-box retailers have been increasingly pushing their in-house brands– this is a much bigger deal.

That’s because the growth in retail is all going to be online, and Amazon owns online. It already accounts for half of all sales growth in U.S. e-commerce.

So Amazon’s move into consumer packaged goods gives it additional opportunity to flex its muscle with suppliers. That means giving its own products better placement on its site and undercutting competitors on pricing.

The move also offers Amazon the chance to pad its profits– something Jeff Bezos hasn’t traditionally been willing or able to do. Private-label brands typically carry higher profit margins, in part because the companies selling them don’t put big marketing campaigns behind them.

Think about the damage Amazon already does to competitors as a low-margin business. Now imagine what happens when it starts generating real profits on stuff like cereal and soap.  This will make it very difficult even for sellers that are ungated in the amazon gated categories such as Grocery, Health & Beauty.   Even though getting ungated in those categories is a long and drawn out process.   Amazon ungating services do exist but they are expensive and there is no guarantee in most cases.

The move is also a way to increase the power of Amazon Prime, the $99-a-year unlimited shipping program that fuels Amazon’s retail growth.

Prime customers spend more on Amazon than non-members and are more loyal, too. By adding another perk, Amazon can make its best customers a lot more loyal.

There’s risk here, obviously. Some Amazon-branded products have already flopped, including its Amazon Element diapers, which were pulled for design flaws shortly after launch.

Now Amazon is selling its own brand of products that people will consume. So a bad experience with that stuff, not to mention a safety issue, can possibly do harm to Amazon’s well-cultivated brand.

But Amazon sits on so much data that it has a likelihood at getting at least a portion of these new bets right.