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Three Things to Know about Amazon.com, Inc. (AMZN)’s ‘Happy Belly’

Viraj Shah :Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

Amazon.com, Inc. (NASDAQ:AMZN) has set its eyes on the food business as it continues to expand its e-commerce empire. A shift into the private-label grocery offerings is the company’s next big play as it looks to undercut other retailers in the business. The new brands on offer will go by the name ‘Happy Belly’ (including nuts, tea, and oil) as well ‘Wickedly Prime’ (snacks and treats) as well as Mama Bear

Amazon.com, Inc. (NASDAQ:AMZN) could launch the new brands as early as the end of the month or early next month. According to people familiar with the matter, the company has been working behind the scenes to develop new private-label lines for years.

So why is Amazon making a push into the private label business? That is a question many would ask given that the company is already doing well while selling other goods. Given the private-label retail market size, margins on offer the e-commerce giant could have a gold mine on its hands.

What is At Stake?

Unlike other markets that Amazon.com, Inc. (NASDAQ:AMZN) has pursued over the years, the global food business is worth $2.14 trillion in annual sales. The private label foodstuffs alone is worth $80 billion a year. Getting a piece of the market size should go a long way in bolstering the giant e-commerce revenues.

Amazon needs to diversify the way it operates and the kind of products it sales if it is to maintain its edge in the industry. The private label business fits the threshold as it is poised to attract a unique set of customers more so those who prefer private label brands.

This will not be the first time that Amazon has dealt in private-label branded products. However, this marks its debut into the food business as it continues to pursue new opportunities for growth. A bigger incentive for the latest push is that the company stands to gain access to a population it has been trying to target for years.

Race for Millennials Dollars

By dealing in private label brands, Amazon.com, Inc. (NASDAQ:AMZN) should be able to gain access to millennials dollars. The generation has already portrayed its loyalty to products, a key ingredient that should help Amazon succeed on this front. Given that Millennials are, brand agnostic, caring mostly about quality price and taste, the e-commerce giant stands to reap big on these front.

The product expansion should help Amazon expand its credentials as the go-to choice for millennials. The same should also reshape consumer perception in terms of where they can get the things they need especially groceries.

Higher Profit Margins

Winning sales in niches is Amazon.com, Inc. (NASDAQ:AMZN) primary goal with the latest push. Private label products come with higher profit margin than other products that the company sales on its e-commerce site. Such products will allow the Seattle-based retailer to test out new prices while taking less risk when trying out more flavors.

Unlike other goods, private label goods allow retailers to save on costs of marketing and brand development thus the higher profit margins. Amazon should be able to generate more earnings on this front given the amount of data it has which should go a long way in helping it identify what works and how to undercut everyone else.

Bottom Line

The sale of private-label brands is a risky affair given that if anything goes wrong and consumers reject a particular product, the retailer’s reputation will be on the line. However, the potential rewards are high as well, but highly dependent on the kind of goods that Amazon.com, Inc. (NASDAQ:AMZN) decides to sell.

Amazon.com, Inc. (NASDAQ:AMZN) has the trove of data it needs to be successful on this front. Given the high margins available in the food retail market, the company will do everything it can to make it count.