March 20 - 23, 2024
Commentary
Why Amazon's Acquisition Of Whole Foods Will Disrupt The Ad Industry
- by Eric Dahan , Columnist, February 5, 2018
Most retailers have been feeling the effects of Amazon’s dominance for years, but one industry — consumer packaged goods — has been able to float by largely unaffected by the e-commerce giant. That’s all starting to change, thanks to Amazon’s acquisition of Whole Foods.
Historically, a CPG brand would focus on battling for prime physical shelf space in grocery stores rather than pouring money into online ad campaigns, but this deal is forcing them to make digital a priority. Ten years ago, most people would have laughed at the thought of ordering things like canned goods and boxed cereal online, but if you asked one of the 90 million Amazon Prime members living in the United States today if they’d order these items online, they’d likely say yes.
While Amazon’s acquisition of Whole Foods highlighted its focus on entering the grocery space in a way we hadn’t seen before, the company has actually been dipping its toes in this pool for years. It launched Amazon Fresh grocery delivery in 2007 in Seattle, eventually expanding to other major U.S. cities, including Los Angeles and New York. With Amazon Fresh, Prime members pay an additional $14.95 per month for same- or next-day delivery on a broad selection of grocery items.
advertisement
advertisement
It also launched Prime Pantry in 2014, which allows Prime members to have up to 45 pounds of non-perishable groceries delivered to their door in one box for a flat shipping rate of $6. The company recently announced it’s phasing out Amazon Fresh in some areas, but its CFO said there would be more cooperation among Whole Foods, Amazon Fresh and Amazon Prime Now two-hour delivery in the coming months. The company’s multifaceted approach seems to be working, as Amazon accounted for 18% of U.S. online grocery sales in 2017, raking in an estimated $2 billion in food and beverage sales.
With these numbers, it’s clear CPG brands can’t ignore Amazon anymore. While they understand the need to adjust their marketing strategy with an added focus on digital, it can be a challenging adjustment. The key to long-term success is understanding how to use modern marketing technology to track performance in real time. Digital marketing moves much faster than offline marketing, and the brands that make quick adjustments will come out ahead.
To start, CPG brands need to adjust their marketing strategies to reflect the coming shift in the sales cycle as brands now must compete for digital shelf space and drive online traffic to their products. This shift will cause the marketing funnel to change, forcing CPG advertisers to enter uncharted territory — the “bottom” of the marketing funnel. CPG brands will have to figure out how to integrate Amazon into their marketing funnel and engage with the online marketplace as a search engine of sorts.
It might seem odd to think of the e-commerce giant as a search engine, but it makes sense when you consider that 56% of shoppers in the U.S., UK, Germany and France use Amazon as a starting point for product discovery. Retailers in other categories have already embraced Amazon as a channel for product discovery, and now that the company is doubling down on its grocery efforts, CPG brands must follow suit.
Beyond integrating Amazon into the marketing funnel, these brands need to reach consumers on social media, where the average internet user spends 135 minutes per day. This should involve a combination of content development across their branded social accounts, paid posts and tapping influencers to collaborate on branded content. Brands in the CPG category will rely on influencers to generate demand for their products and rely on paid social and other direct response methods for converting that demand into direct sales online.
Furthermore, Amazon’s acquisition of Whole Foods could signal more than just a change in the marketing funnel. Purchasing products online through a virtual shopping cart rather than a physical shopping cart also opens a new possibility, the ability for automated renewals and monthly subscriptions.
Imagine rather than having to go to the supermarket every Sunday, you could have a box delivered every month filled with Keurig capsules, Cheerios, almond milk, and all the other products you love. This means CPG brands will have to start looking at KPIs like LTV (lifetime value), Churn Rate, CPA (cost per acquisition), AOV (average order value), and many more terms familiar to e-commerce and SaaS businesses.
For CPG brands, the overarching takeaway from Amazon’s acquisition of Whole Foods should be to focus on digital. A rapidly increasing number of today’s consumers aren’t spending two hours at the grocery store on a Sunday afternoon, so you cannot count solely on organic product discovery through optimal shelf space in physical stores. Instead, brands need to engage customers at multiple digital touchpoints to stay top of mind and get their products into the online shopping carts of consumers across the globe.
Moreover, they must set clear KPIs and keep a close eye on bottom funnel metrics. Those that can develop, execute and maintain a strong digital strategy will position themselves for continued long-term success — regardless of what Amazon does next.
3 comments about "Why Amazon's Acquisition Of Whole Foods Will Disrupt The Ad Industry".
Read more comments >
Next story loading 
Agree with Paula, and considering our volatile food and energy index costs, especially staple food items, not goat cheese, this index will continue to "eat" into discertionairy spend, and with that, the growing divide between diluting middle class on down, expenditures, and looking for the ever cheaper CPG deal.
With the "affluent" and up..who obviously wants a deal, albeit increasingly lower quality from 10+ years ago, they'll buy smaller volumes at slightly/higher profit margins.
Regardless, I think we're near the end of an extended economic cycle, as do others, Goldilocks may come to roost soon, which will further drive down an already abysmal digital landscape (in net margins) for major CPG players...they'l need to continue with M&A activity...and work more increasingly with Amazon Prime.
The latest personal savings rate is now 2.8%, from where it was in '06, and there isn't a composition on HOW this is defined in demos/top markets, though CPG is a key player in staple "every day" items, not including utilies/mortgages/rent/auto costs.
While Amazon will undoubtedly put pressue on grocery retailers and manufacturers' future ad budgets, we need to understand that change will come relatively slowly because 1) Today, online represents only 2% of all grocery sales 2) the vast majority of CPG manufacturers' marketing spending goes towards promotions / temporary price reductions not advertising and 3) the majority of consumers say they still want to visit a grocery store to buy meat and produce
While there certainly is movement towards direct marketing by traditional CPG brands and Amazon should play a major role in that aspect, this doesn't necessarily mean that traditional ad budgets will be "disrupted" as you still have to motivate consumers to want your brand and, along with that, you must constantly reinforce the convictions of current users to keep them as brand loyal as possible in the face of competitive brand blandishments. Also, you need lots of advertising spend to launch new products and inform consumers about their existence and merits.
The "uncharted waters" will, of course, be digital, however the dollars that support digital direct response for CPG brands will, most likely, come out of sales promotion not ad budgets and will be paid for by a corresponding reduction in payments allocated to the stores. Just my opinion, of course.