There’s one section of the Amazon catalog that has lots and lots of holes and a ton of potential for brands to grow. Amazon is also trying to make it easier in this category. They just dropped the referral fee to 8% for the next year.
It’s the grocery category. However, selling in grocery isn’t for the faint of heart, especially if you have a perishable item.
“The candy life woes in the summer are pretty tough to figure out,” says Jed Morgan with Little Secrets, a dark chocolate candy company.
Little Secrets makes all natural chocolates and they have tons of brick and mortar distribution including in Whole Foods. Amazon has been a difficult place for them, with lots of hurdles. These hurdles can be challenging, but not impossible to overcome.
“Grocery is an exciting, hugely exciting opportunity for brands on Amazon,” says former Amazonian Peter Kearns.
Peter worked in the Grocery category while working at Amazon. Now Peter is the Vice President of Client Solutions for 180Commerce. Some of Peter’s clients are grocery sellers, in fact, one of his clients was recently on MSNBC –> (http://www.msnbc.com/your-business/watch/nutpods-has-connected-with-its-customers-on-ecommerce-1077809731697) talking about her success.
Amazon wants the grocery category to grow, so much so that they recently dropped referral fees from 15% to 8% for the next year. Grocery is an exciting place to be, especially since Amazon bought Whole Foods.
The Whole Foods acquisition essentially gives Amazon 400 customer facing distribution centers across the country. It’s not totally clear what the acquisition means right now for companies with Whole Foods distribution and also selling on Amazon. Companies like Little Secrets.
For Little Secrets to get their product to Whole Foods, they use a co-packer who ships it in a refrigerated truck. But to get it to Amazon, First off, perishable items, like chocolate, can only be shipped to Amazon Fulfillment Centers between October 1 – April 30. Mainly because chocolates left in Amazon Fulfillment Centers that are too hot, can melt. The second problem: the chocolates aren’t sent by refrigerated truck.
“With Amazon, we have different package sizes that go to our end customers so we’re bringing it to our office and then we have some packing parties where we put together some four packs or cases or units and for the singles,” Jed says.
Selling products over the summer requires companies like Little Secrets to do Seller Fulfilled Prime. That’s expensive for the company and the customers.
“We would do the ice packs and we would do everything overnight but we had to increase our costs, pretty drastically, which was kind of a dagger to do on our end because it’s always tough to pass that cost along to the customer but we just had to because the shipping prices were pretty tough,” Jed says.
There’s a whole list of problems that come with selling grocery items and these are only a couple of them. There are Amazon tools that can solve some problems for companies with these issues. Prime Pantry and Amazon Fresh.
“It’s gonna be a massive shift and we’re not totally sure when that is but we feel that people are very quickly switching from going into stores to getting everything through Amazon,” Jed says.
Before taking a look at both Prime Pantry and Amazon Fresh, here’s a little bit of perspective on grocery. Right now, grocery is a $900 billion industry and eCommerce represents only about 2%. Amazon and others see that as lots of room for growth in grocery online.
The margins for grocery items do end up being slimmer, which is why it’s great that Amazon lowered the referral fee, but grocery has items that people buy repeatedly. That means if it’s a great product customers will come back and purchase it again and again.
To get access to both Prime Pantry and Amazon Fresh, sellers have to have a vendor account. There’s an application process to get in and depending on the product, it may or may not be approved.
You have to fill out an application to get in – and depending on what your product is – the application may or may not be approved.
“It’s important to recognize that a majority of the products that Amazon makes available for brands through vendor tools like Vendor Express or through Vendor Central eventually get rolled out to third-party sellers,” Peter says.
A good example of that is the Subscribe and Save tool. It used to be only available for brands through Vendor Central. Then Amazon rolled it out in a pilot program for third-party merchants and now it’s available in Seller Central. It’s likely more grocery tools will be rolled out for sellers in the near future. Sellers can get a jumpstart in those programs by selling products directly to Amazon through a Vendor account.
“Definitely want to look at those opportunities because there are going to be competitor brands that are going to be taking advantage of it,” Peter says.
There’s a strategy grocery sellers will want to follow to get a vendor account because there is an application process. Competition to get into some categories in Grocery can be competitive. Peter recommends Grocery sellers start in Seller Central and create their listings using Enhanced Brand Content and start building their brand presence.
“I do everything I can to get my Seller Central account dialed in, running on full cylinders and however long that takes, to be totally honest, probably will take you 12-18 months to really understand what’s going on with your business on Amazon and then I would start looking at adopting those other programs,” Peter says.
Grocery sellers want to create a strong presence on Amazon and then go through the application process to be a vendor. Creating a strong Amazon grocery brand could be a key part too for future brick and mortar distribution in Whole Foods.
“If it’s a brand that’s doing really well on Amazon, why wouldn’t they also want to get it into brick and mortar,” Peter says.
Thank you to Peter Kearns for being our Amazon Insider for this episode. If you have a grocery product and you need help figuring out how to maximize on Amazon, you can find him at 180commerce.com.
Also thanks to Little Secrets. Make sure to check for their all-natural dark chocolate candies on Amazon.
This is the first episode we’ve done about grocery and there’s more to come.