Dive Brief:

• Amazon has invited packaged goods manufacturers to a meeting in Seattle during May, where it will try to persuade them to focus more of their resources on direct-to-consumer sales through its site, according to Bloomberg. Executives from General Mills, Mondelez and other packaged goods makers will attend the three-day gathering.
• If companies buy Amazon’s pitch, it likely means they will focus more on optimizing their products and packaging for delivery and less on shelf sales.    
• Analysts interviewed by Bloomberg likened the move to club stores convincing manufacturers to offer more bulk products twenty years ago.

Dive Insight:

With this audacious move, Amazon hopes to convince consumer packaged goods manufacturers that e-commerce, which comprises just 2% of grocery sales, is the future of grocery shopping. Amazon's goal is to convince companies to shift their focus from developing products for retail shelves to making them for online ordering and delivery. Instead of attractive packaging, manufacturers would likely focus on plain, durable packaging. Instead of pallets of products, they’d focus on turning out individual items for shipment.

Could Amazon actually pull this off? It certainly has some favorable tailwinds. Center store sales have been stagnant for some time, and manufacturers are eagerly seeking out new sources of revenue. And while e-commerce accounts for a small share of grocery sales, it is growing rapidly. By 2025, the Food Marketing Institute expects online grocery sales to be worth $100 billion. Manufacturers may see a major upside to partnering with Amazon and gaining further access to its more than 60 million Prime subscribers, not to mention its ever-evolving logistics.

On the other hand, manufacturers still make a lot of money at retail, and will probably be reluctant to disrupt those sales even a little bit. It’s also unclear what the exact terms of a relationship with Amazon will be. Who will handle the shipping? How will distribution work? And how much will Amazon’s take cut into margins?

The most likely scenario is manufacturers will jump onboard with Amazon at a level that doesn’t disrupt their brick-and-mortar sales. If direct-to-consumer sales show promising returns, companies could shift more of their focus from in-store to online.

For Amazon, which currently sells many packaged goods through its Prime Pantry service and its retail partners in more than thirty markets, a major expansion into direct sales would position it to steal significant share away from grocers. Low prices would be the main draw, along with delivery that could happen in as quickly as an hour. If the company can integrate packaged goods sales with its Fresh service, it could offer a full shop at prices retailers would struggle to match.

If nothing else, this move signals loud and clear Amazon’s intentions to make significant inroads in the $600 billion grocery industry.