FoodThink Amazon blog SHS Sullivan Higdon & Sink
  • October 30, 2018

Is Selling Food On Amazon Worth It To You? Ten Ways To Know

When Amazon purchased Whole Foods Market in 2017, the rest of the grocery business braced for impact. One year later, while Whole Foods itself may not look all that different on the surface, the rest of the industry certainly does.

The grocery landscape continues to change, driven by some of its biggest players. Kroger’s May 2018 partnership with British online grocery giant Ocado, Walmart’s purchase of Jet.com and the launch of its Jetblack concierge service are just three examples.

The first quarter of 2018 saw Amazon.com’s U.S. grocery sales grow almost 50 percent year over year.1 It has earned an 18 percent market share of U.S online grocery sales, the largest share of any single retailer.2

If you’re in the grocery industry, this should all lead to two questions:

  1. “Should I be selling food online?”
  2. “Should I be selling food on Amazon?”

This blog post will help you answer the second question by showing you the benefits, challenges and logistics of adding your food items to the Amazon platform.

But first, some context to help you answer the first.

Consumers Are Buying More Food Online

Approximately 4.5 percent of global grocery sales come from online, and a report from Kantar says that e-commerce now contributes to a record 36 percent of fast-moving consumer goods (FMCG) growth globally.3

But isn’t there a major generational gap between those who shop online versus in-store?

SHS FoodThink data shows that in the U.S., while there is a gap, it’s not the chasm you might expect, with just ten percentage points separating Millennials and Boomers.4

The Food Marketing Institute (FMI) projects that by 2022, that gap will have closed to the tune of an $850 nationwide average yearly spend on online grocery shopping.5

Part of that growth can be attributed to consumers’ ever-flourishing relationship with food online. Forty-nine percent of consumers say they typically consult online/websites when looking for help or inspiration when cooking. This is a higher percentage than those who consult, among other things, family, friends and cookbooks.4

So, it seems safe to assume that selling online is a good idea, but should it be via Amazon? And in what capacity?

Reasons to Sell Food on Amazon

Here are five reasons you can count on Amazon’s platform for success:

1. Amazon is the World Leader in Retail

There are no two ways about it, Amazon has changed the face of retail, e-commerce and consumerism. Remember when Amazon just sold books? Then added CDs in the late 1990s? Fast-forward to 2017 when Amazon’s share of all U.S. e-commerce sales was 44 percent. That’s 4 percent of all U.S retail sales.6

This couldn’t have happened if they had kept their sights on books alone, or any single category. When the folks at Amazon decide to disrupt a category, there are no half measures.

Take apparel as an example. In 2017, Amazon’s share of the U.S apparel market grew by 1.5 percent to achieve a 7.9 percent share,7 placing them second only to Walmart and stealing share from long-established apparel retailers. Their investment in private label clothing brands and testing try-before-you-buy services are just two of many examples of how strategic Amazon is when it comes to claiming a category.

Using similar strategic drive, the grocery market is also now firmly in Amazon’s grip.

If Amazon’s acquisition of Whole Foods isn’t proof enough of its commitment to disrupt the category, initiatives such as Amazon Go, Amazon Fresh, Prime Pantry and Prime Now should be.

These services are not only growing the grocery industry but helping to redefine it.

2. Amazon’s Reach and Traffic Is Unparalleled

When it comes to online traffic in the retail sector, Amazon wins by a landslide.

Amazon has close to 200 million unique users every month. That’s more than The Home Depot, Etsy, Macy’s and Best Buy combined, according to a recent comScore study.8

Amazon is also a great platform for paid media and, similar to other major social and search channels, it provides multiple ways to get your product listings seen.

Sellers can pay to promote through sponsored product ads, which can be targeted via keywords and topics. Other ways to promote include product giveaways, discounts and Amazon’s “lightning deals” placement.

3. Buyer Intent on Amazon Is High

People rarely come to Amazon to window-shop, so you can count on buyer intent from the start. There is, however, a significant amount of research and exploration done on Amazon, thanks to the product information, imagery, videos, FAQs and reviews on its product pages.

Amazon product pages make for good testing environments before you develop your own website and online footprint.

A presence both on Amazon and in-store work well hand-in-hand. With both at their disposal, consumers often research products online, even if they drop off before making a purchase and go to a brick and mortar location, especially of high-ticket or new items.

And vice-versa, consumers often research in-store and then purchase online at their leisure.

As opposed to cannibalizing each other, the two retail channels often work as thresholds to each other.

4. It Takes Minimal Upfront Investment to Sell Food on Amazon

As an Amazon seller, you get access to Amazon’s platform to post all of your products and assets for a relatively small investment. That’s not to say it’s cheap, but if you have the right pricing strategy, the fees shouldn’t break the bank.

Two options mean sellers can do what’s right based on their inventory levels and the pace of their business.

A professional seller account comes at a cost of $39.99 per month plus variable selling fees. Being a professional seller is one of the criteria for selling in certain categories, including “Grocery and Gourmet Food.” Being a professional seller brings with it perks such as access to reports and top placement on product detail pages.

The alternative option is an individual account in which sellers are charged a per-item-sold fee of $0.99 plus additional, variable selling fees. This type of account is better suited to hobbyists who are looking to move just a few units per week. Individual sellers can sell in 20 of Amazon’s 30 categories.

Something to consider is that some additional upfront investment might be required to optimize your product’s packaging.

Many food and beverage brands have recalibrated packaging format, size and servings in order to cater better to online consumers. This is especially relevant if you choose a business model that includes Amazon Prime where one of your challenges will be to remain profitable while offering free shipping.

5. Amazon Has Multiple Distribution Capabilities

Selling food on Amazon can take different guises thanks to the variety of available distribution models (more on these later). You have a chance at success regardless of the size of your business.

Fulfilled by Amazon (FBA)

Also sometimes called Amazon Fulfilled Network (AFN), FBA sellers have the benefit and peace-of-mind of having Amazon do everything other than manufacture the product for them.

Fulfilled by Merchant (FBM)

Also called Merchant Fulfilled Network (MFN), FBM sellers manage all logistics and after-care themselves while Amazon processes the transaction only.

Amazon Seller-Fulfilled Prime (Amazon SFP)

Introduced in 2015, this is a way for FBM sellers to still benefit from Prime status previously only available to FBA sellers.

Vendor Central

A fourth seller option is Amazon’s vendor program, Vendor Central. Being an Amazon vendor is different than being a seller, and is far more akin to a traditional vendor/retailer partnership.

In this model, Amazon is a customer and purchases stock at wholesale. Products traded via this model are the ones Amazon includes in its Fresh, Prime Pantry, Prime Now and Dash Button programs. Sellers cannot participate in these programs.

Because vendors can only trade in this capacity at Amazon’s invitation, we are focusing on third-party seller options to help you make your decision as to whether selling food on Amazon is right for you.

Reasons not to Sell Food on Amazon

Despite all its benefits, Amazon might not be the platform that’s right for you and your business. Here are five alternatives to consider before making your decision:

1. The Coveted Buy Box

It has been said that if you can’t earn the Buy Box, it’s not even worth trying to succeed on Amazon. While this isn’t strictly true, the Buy Box does hold a lot of cards in the game of getting your product seen and sold.

In fact, it’s possibly the most powerful tool to help you navigate the cutthroat competition of the Amazon jungle.

What Exactly Is the Buy Box?

The Buy Box is the white panel to the right of the product listing that contains the “Add to Cart” button, along with details about shipping options and stock levels.

This box creates minimum work for the shopper – they can see all the details they need to add a product to a wish list or straight into their cart. They can even complete the transaction immediately if they have one-click ordering enabled.

Without a Buy Box, instead of an Add to Cart button, shoppers are shown a “See All Buying Options” button. This takes them to a second screen where they can see additional information and finally add the item to their cart.

It might not sound like like a huge disruption to the customer journey, but more than 80 percent of all Amazon transactions go through a Buy Box.

Without it, you’re likely to earn significantly less of your potential market share and sales volume, which might not be enough to sustain your business.

How Do I Win the Buy Box?

It should be clarified that when you win the Buy Box, what you actually win is a share of it. Meaning, depending on the density of your competition, your listing will feature the Buy Box only some of the time, and will feature on competitor products the rest of the time.

Multiple metrics impact your chance of winning the Buy Box. Price is one, fulfillment model, fully landed price (price including shipping and taxes) and shipping times are some of the others.

Coveted as it is, remember that an overwhelming majority of Amazon sales go through a Buy Box, so earning it is clearly not an impossible achievement. Just know that you are unlikely to earn it quickly, or wholly, the minute you begin trading on Amazon.

2. Certain Industries Are Already Too Saturated

This is a watch out that is by no means exclusive to food, but certainly applicable. Amazon is probably not the place to go head-to-head with market leaders or well-established brands, or to try to disrupt a high-commodity category.

In some categories, Amazon itself is the leader. For example, in non-food, Amazon’s private label brand, Amazon Basics (similar to Walmart’s Best Value) has the lead on everyday household items such as batteries, kitchen utensils, etc.

The more competition and the less-known a brand is, the harder it is to work the Amazon algorithms to your advantage and achieve things like the Buy Box. So, unless your product truly stands out from the flock, success on Amazon might not be worth pursuing.

Similarly, if your product is easily replicated or you don’t have tight distribution controls, don’t be surprised to find dozens, if not hundreds, of resellers offering the same product on Amazon.

3. Elastic Pricing Can Be Both a Friend and a Foe

An argument that just as easily belongs in reasons to sell food on Amazon is the multiple options sellers have to monitor and control pricing. This is a double-edged sword because it can just as easily make a product competitive as it can devalue it.

It’s no secret that lower prices often mean higher-volume sales, so Amazon gives FBA sellers the ability to re-price their items at will.

Manual Re-pricing

Manual re-pricing allows sellers to adjust the price of an item manually. This isn’t a sustainable approach for those with an extensive catalog, but for a small selection of items, this can work just fine. Of course, as well as the price change itself, competitor pricing also requires manual monitoring.

Rule-Based Re-pricing

Rule-based re-pricing uses third-party tools to monitor competitor pricing and adjust accordingly by as little as $0.01. This method can still be time-consuming upfront as you create all the rules, but it certainly saves time versus manual repricing.

Algorithmic Re-pricing

Algorithmic re-pricing is the most sophisticated approach, but it comes with a price tag to set up and maintain. Beyond simply lowering prices, this method takes into account multiple metrics and works in the seller’s favor to earn Buy Box share while minimizing the impact on profit.

So What’s the Catch?

No catch, but another watch out: Re-pricing according to what your competitors are doing can quickly turn into a race to the bottom.

Remember all of the traffic and research tools we talked about? These things mean that consumers remember what they see on Amazon, so when a product price-establishes too far beneath RRP and too quickly, consumers will come to expect it. That expectation is very hard to fight.

Make sure you strike a balance that is healthy for your business – remain competitive without compromising the credibility of your brand.

4. Red Tape

Unfortunately, sometimes you have to prove yourself if you want to play with the big boys.

Amazon is not about to let just anyone sell just anything without having to jump through a few hoops first. And for good reason – like any business, regulations and compliance keep the channel a fair and safe place to sell and shop, plus they keep sellers accountable for happy consumers. The downside is that they create work for sellers upfront and beyond. So if admin isn’t your bag, look away now.

“Grocery and Gourmet Food” is what’s known as a “gated” category.

There are many requirements that sellers must meet in order to become “ungated” and maintain their right to sell in this category. These requirements include providing invoices to Amazon upon request. Sellers are also subject to minimum and maximum thresholds on things like late shipments and defective orders.

Food brings with it its own criteria for packaging and, of course, food safety, including shelf lives and temperature sensitivity. Based on these things, Amazon has specific windows in which it will accept food products into its fulfillment centers and how long it will keep them there.

Inventory control also needs to be considered and closely managed.

It’s important to be aware that Amazon’s fulfillment centers are just that – fulfilment centers, not warehouses. They need inventory to move through the supply chain quickly and efficiently, and they charge FBA sellers monthly storage costs per cubic foot.

In short, if your inventory is unlikely to move through the Amazon infrastructure quickly, then you might want to reconsider or at least budget accurately for inventory costs.

5. Lack of Customer Relationship

Each sale on Amazon is viewed as a one-time transaction, and sellers are not able to market or re-market to consumers after the sale.

This can understandably hinder a brand’s attempts to build and nurture relationships with consumers.

If your business is an up-and-coming boutique brand that’s success is likely dependent on consumer testimonials, Amazon might not be the most appropriate retail platform, at least not your sole retail platform, and probably not as an FBA seller. Of course, if you have other retail outlets and/or brick and mortar stores, then it can be a great add-on.

The FBM model allows for a more personalized service in terms of packaging and shipping, but still doesn’t allow for direct communication.

Which Amazon Model Is Best for Your Business?

FBA (Fulfilled by Amazon)

The Pros of FBA

  • It goes without saying that relinquishing all but manufacturing can make life easier.
  • FBA sellers can offer Amazon Prime, which adds an element of credibility and short delivery times that consumers love.
  • Algorithms tend to favor FBA listings, including those that determine winners of the Buy Box.

Considerations

  • There are, of course, fees to pay. Warehouse fees are charged monthly per cubic foot so bulky or slow-moving stock can be costly.
  • Also costly: Sellers are encouraged to ship to multiple fulfillment centers.
  • Sellers must adhere to Amazon packaging requirements, which can be restrictive.

FBA is a good option for sellers who sell high levels of stock at pace. Without FBA, managing the logistics needed to run this type of business requires a lot of overhead, not least of which is employee cost.

FBM (Fulfilled by Merchant)

The Pros of FBM

  • In general, less control is given over to Amazon which can be important when building a brand.
  • Sellers have complete control of the delivery process. This can be valuable if you run a business that likes to personalize deliveries with handwritten notes, for example.
  • Control is also retained over handling of items which can bring sellers peace of mind as they afford less chance of damage.
  • If you have the space for storage and the manpower to fulfil your own orders, then FBM may well be a more cost-efficient model for you than FBA.

Considerations

  • FBM sellers will always be in competition with, and at somewhat of a disadvantage to, FBA sellers for a share of the Buy Box and other algorithms.
  • FBM can quickly put unsustainable demands on people and space as output increases.

FBM can be a good option for sellers who already have an infrastructure that affords them space and people to absorb additional fulfillment demands, such as brick and mortar stores.

Amazon SFP (Amazon Seller-Fulfilled Prime)

Pros of Amazon SFP

  • Amazon SFP sellers have the benefit of offering Prime to their consumers, which gives them access to the program’s one hundred million subscribers.9
  • They can do this without relinquishing too much control to Amazon or being subject to FBA storage penalties.

Considerations

  • The costs to fulfill your Prime two-day shipping obligations can be high and need to be factored in strategically. Adjusting your regional settings (defining where you will and will not guarantee two-day shipping) can mitigate these somewhat, although this approach might cast some aspersions on the credibility of your Prime badge.
  • Sellers must complete a trial period of between 5 and 90 days, during which time they must meet strict performance metrics. Only then do they become eligible for the Amazon SFP program. Metrics include on-time shipment rates and cancellation rates.
  • Sellers are bound to Amazon’s terms on things such as refunds and returns, but they also have more control over the physical process of those things.

Amazon SFP is a good option for those who want the benefits of Prime and can afford to absorb higher shipping costs but don’t require Amazon’s help with storage and fulfillment.

Should You Market Your Amazon Launch?

In our experience, yes. A client of SHS, Rumba Meats, recently began selling food on Amazon. In addition to the marketing tools available to them within the platform, they invested in communications designed to drive consumers to Amazon.com.

Rumba Meats is a specialty Hispanic variety meats brand whose products are loved by many and used in traditional Hispanic family recipes.

Much to the frustration of its consumer-base, Rumba Meats does not yet have nationwide in-store distribution. Offering it online was an almost fool-proof way to recruit new consumers, for whom Rumba Meats’ specialty cuts were much desired but inaccessible.

Three tactics helped ensure that target consumers outside the Amazon space were left in no doubt that Rumba Meats were now available to them, regardless of where they live.

Optimizing the Brand Website

Rumba Meats’ own website is not a direct-to-consumer platform but with the addition of Amazon buttons, it was quickly able to behave more like one than it had before. Trackable links were added to individual product and recipe pages, and calls to action were added to the store locator tool (one of the site’s most visited pages) to demonstrate that a lack of in-store availability need no longer be a problem.

Paid Search

Paid search budgets were increased to drive additional traffic toward Amazon, and the budget was split to direct consumers to both Amazon product pages and the product pages on Rumbameats.com.

As we monitor both journeys and optimize paid search investment, we are able to balance the path to purchase that yields the highest conversion with the one that drives the best brand awareness.

Influencers

Influencers have long been a part of Rumba Meats’ marketing toolbox and for good reason – they provide an authentic seal of approval from the communities that use the product, for the communities that need it.

In advance of the formal launch of Rumba Meats on Amazon, we enlisted Rumba’s panel of influencers to test-order the products and document their experience of both the purchase process and the product on their blogs. As well as proving a great testing environment, these reviews will also drive additional traffic directly from the blogs to the Amazon product pages.

An off-site marketing campaign is a valuable approach for brand managers who know they are going to struggle to achieve great brand presence within Amazon.com from the start.

Additionally, when combined with a marketing campaign within Amazon.com, a launch campaign will almost certainly drive traffic and expedite your fair share of the Buy Box.

To Sell Food on Amazon, or Not To Sell Food on Amazon?

One thing that is abundantly clear is that selling food on Amazon is not a straightforward decision or process. That’s because Amazon recognizes that no two businesses are the same and has created many variables to keep itself and your business agile and adaptable.

We’ve shown you everything we think you need to know to make an informed decision, but how do you actually make it? Begin by weighing the size and stage of your business.

If your business is brand new, you will need to give serious consideration as to whether you want Amazon to be your sole retail platform.

If you do, the FBM model is likely to be the most cost-efficient model for you. You will need to consider a marketing plan within and beyond Amazon to both drive people to the site and to capture people within it. You will not earn a great brand presence on Amazon without investment.

If you already have wide distribution, good brand awareness and a business model that allows you to easily absorb additional costs, then you might choose to go all in – sign up for an FBA partnership, invest in algorithmic pricing, invest big in paid media on and off-site and get down to earning that Buy Box.

For everything in between, remember that all of those options mean you have the ability to test, try, fail and try again.

There’s no need to overcommit from day one and put your business at risk. Instead, start small and increase your investment as you need to.

Perhaps the most important piece of advice we can give you is this: Whatever you do, do not ignore online grocery.

Even if selling food on Amazon proves not to be the best option for your business, find another way. Too many retailers have had to close their doors due to losing the battle with e-commerce, which is transforming brands and businesses the world over.

While grocery stores are not quite on the brink of extinction, the times are certainly changing. By 2025, online grocery is predicted to account for 20 percent of total grocery sales.10 We want you to be there when it does.

Sources:
1. PR Newswire, One Click Retail, April 2018.
2. Supermarket News, One Click Retail, July 2018.
3. Digital Commerce 360, Kantar, December 2017.
4. SHS FoodThink, 2018.
5. FMI, 2018.
6. CNBC, January 2018.
7. CNBC, April 2018.
8. Statista, comScore, December 2017.
9. CNN, April, 2018.
10. Forbes, January 2018