EP103 - Amazon Private Label Deep Dive

EP103 - Amazon Private Label Deep Dive

This episode is a deep dive into Amazon's Private Label activities:

Framework for Amazon Private Label Brands Amazon's History in Private Label Amazonscape Advice for Brands and Retailers Update on Amazon Private Label Marketshare from 1010data Mary Meeker State of the Internet (slide 75 is the one discussed)

Special thanks to Samir Bhavnani and Tim Wilson from 1010data. for providing their data and insight for this episode.

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 103 of the Jason & Scot show was recorded on Wednesday October 4, 2017.

http://jasonandscot.com

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

New beta feature - Google Automated Transcription of the show:

Transcript

Jason: 
[0:25] Welcome to the Jason and Scott show this is episode 103 being recorded on Wednesday October 4th I'm your host Jason retailgeek Goldberg as usual I'm here with your co-host Scott Wingo.

Scot & Guests: 
[0:38] Hey Jason and welcome back Jason and Scott show listeners.

[0:55] Today we're going to continue our very popular deep dive series,
and jump into something that has really caught on in the last 6 months there's been a lot of excitement around this so it was sparked by Mary Meeker really kind of putting a bright Spotlight on this,
and that is the topic of Amazon private label,
Jason I know you have thought a lot about Amazon private label and I think the the real meat and potatoes is know what what I'm hearing from brances there's a couple of questions there,
really grappling with and we're going to answer this questions and give listeners some new data that,
this the first time you'll hear this data thanks to a gas it's going to be on the show but before we jump into that I know you spent a lot of time thinking about this help give our listeners kind of framework for for how to think about these private label offerings are so many now it can be kind of confusing so as to how do you kind of sort them in and organize them.

Jason: 
[1:52] Yeah Scott well I don't think there is one perfect framework at the moment so I'm using a number of different dimensions to sort of think about these and slicing and dicing in different ways and so there's there's sort of for big.
Big Dimensions II think about their 5 depending how you count the the first one is,
Prime exclusive versus non-exclusive product so there's a subset of these brands at Amazon's offering that you have to be a Prime member to get sew-in apparel that something like button-down or good threads in in cpg that something like Mama Bear or wickedly prime or happy belly,
and so you know here.
Obviously there they're partly training use these private labels as an extra inducement to sign up for Prime and.
And more and adding more value the prime memberships the II framework is is.
What we call Amazon branded versus non-branded right in so of this ecosystem of.

[3:00] You know now over 50 50 different brands that Amazon has has invented a handful of those five of those.
You can look at them and immediately know it's an Amazon product because they they would either have Amazon in the name are there so closely associated with Amazon.
And heavily advertised by Amazon that is very Queer as an Amazon product so that's.

[3:21] Amazonbasics that's Echo that's fire that's Amazon elements in Amazon essentials.
I'm but the overwhelming majority of these Brands and Amazon's creating.

[3:33] It seems that they're they're going to reason with extensive links to not make it obvious that it's an Amazon brand and have it feel potentially like.

[3:41] A standalone National brand in sew-in Apparel in particular they've created a bunch of these brands.
And this is things like Scout and Ro James and Erin Waterton Road those those sorts of of brands.

[3:58] So the 3rd framework will uses is to think about them in the different categories and this is the the normal product taxonomy like in a lot of these products fit any Electronics category their increasingly are products in cpg.
There's there's definitely products targeted specifically a baby.
There's a bunch of apparel and now there's some health and fitness and Home and Garden.
And in each of those categories you're you're seeing some of the Amazon branded product and sum of the unbranded product.

[4:31] You pointed out a couple to me that that we're new to me.
You know like there may be even sub-brand so in fashion you're not answering to see like outdoor a fashion like Denali as a specific sub brand in the in the fashion category.
In the last category framework that we use is what I called basic versus luxury and said there are a lot of these products where their biggest value proposition is.
That they're at and appealing price point for a good quality product the matches the product you're used to using.
In tow light apparel is the easiest way to think about this these are the that you know,
the standard uniform button down shirts that we wear in their in their case would rename button down these are like the basic t-shirts and all all these sorts of things and as you talked about on a couple Brands like.
Amazon sort of gives you three tiers of quality you can get a.
An unfamiliar you know typically like offshore products from China at a super low price point.
You can get a amazonbasics product at a low price point,
or you can get a luxury branded version of a product at a higher price point in so a lot of the Amazon products are playing in this sort of basic category but increasingly we're seeing Amazon,
to get products that are moving up market and have their own value propositions that are driving their own demand and they're not just a.

[6:10] Value proposition you know for the same feature set that you can get from a national brand some case they're there differentiated quality and certainly like Amazon Echo would be the.
The prime example of a of a luxury product that's sort of the the category leader with its own unique feature so.
You know you can come use any of those Frameworks to slice and dice all of these different brands and as as time permits what you know we probably need to create some sort of the infographic to put in the show note to make that more clear.

Scot & Guests: 
[6:43] Yes funny you mention that way you actually have to if we happen to have one so just a little history that makes that framework I think that's super helpful.
The background on Amazon private label,
probably the first one that I can find documentation of is when Amazon watch Kendall that was the first time they came out with a product and its really funny because prior to Kendall,
Amazon was notoriously famous for not running TV ads day back in like,
03 they ran a series of TV ads called the sweater women wear these guys singing this people singing Christmas carols by a fire.
Stop doing that when someone ask Jeff Bezos why he said we want to take every marketing dollar and put it into,
free shipping and lowering prices so so then kind of for literally 5 years they didn't really run any TV until they came out the candle they started to do TV and more.

[7:39] Typical brand advertising it was interesting in 09 I was so I blocked I've been to this Amazon gig before it was his hip and.

Jason: 
[7:52] Weighted hip now.

Scot & Guests: 
[7:53] I guess I guess so well there's podcast now so there you go before Matt and I found this product called pins on and I couldn't.
You don't figure out what's going on and it was supposed to go today on Amazon so they're kind of pushing it as likewise Amazon pushing the spins on thing so then I kind of went into the bowels of the trademark Registry and figured out it was owned by Amazon,
oh my God this is a new private label so I just worked out a quick blog and then it actually got picked up by lot of press and then I,
I kind of using that same method I found there was a list of six Brands three of them were actually just calling to reserve so they were trademarked but had never been utilized the other three were Strathmore in Denali,
so I kind of stumbled on and then over the years I've watched this pretty closely so so for me and there's actually a lot of Articles coming out now about this or people using that same system in so there was one in court so they're like you know Amazon has,
800 private labels waiting in the wings and so that's a little tricky because,
to me you don't I don't think we talked about it as a private label unless it is on the site and live and there's more than one product for sale another kind of checkbox for me is does it have kind of a logo,
since that point just kind of notes,
over the years they've done more of this and what we hear from Amazon insiders is this private label group kind of outside of,
Kindle an echo is one of the hottest groups inside of Amazon so they're hiring massively they have plans to ramp up private label in pretty much every care.

[9:30] Category so so here's the private labels we know today and I'm going to start with a,
The Matrix taxonomy so so Jason you introduce some slow start,
the ones are good too so we'll go through Prime exclusive first and then not prime exclusive or are generally available and then category so it would start with the things that are prime exclusive and,
that the most they have in the prime exclusive bucket is fashion so they have Amazon essentials,
blessings likes men's shorts at highly recommend those things of that nature. Kind of Basics but down you mentioned,
Ella Moon good threads James and Erin is 22 of them have Row in the name Lark and Ro and Scout and Ro.
May which is Mae and I think that's lingerie only the UK north 11 and Paris Sunday.
There's a new one that's out called the fix and I believe that is prime exclusive,
then the other bucket of prime exclusive private labels are in cpg there you have Amazon elements and I was getting elements and essential elements is fashion,
she did it already Essentials is fashion elements to cpg happy belly Presto Mama Bear and wickedly Prime,
then in the broader categories so these are just generally private label that are not prime exclusive amazonbasics which is the popular accessories to start as Electronics accessories and we've seen,
you know things like a bocce ball sets and their stickers Amazon Basics is exploded past that the simplest kind of things.

[11:07] Denali what you mentioned two dice funny so a lot of time still you can tell they test these things so $2 in strathwood of the ones I've been following the longest stressful it's been pretty true to doing kind of outdoor furniture kind of stuff,
it only started this tools so it's kind of a Black & Decker competitor and tool sets and it's kind of pivoted you mentioned it to function and kind of outdoor.
Pinzon has been there that's a home,
Home Goods kind of sheets and those kinds of things Pike Street actually had one they retired that was a coffee brand it had Pike in the name as well I'm glad he's our have a nod to Seattle and they're so like Molly the mountain you see in Seattle Pike Street obviously,
and then the journey available not prime exclusive fashion private labels are Franklin and Freeman Franklin Taylor.
Iris Lilly that's a weird cuz everyone else has and and up down just two words together Iris Lily and that's exclusive to London and Society New York.
And those are kind of it will put a graphic in the show notes that's part of this Amazon scape I did where I tried to kind of organized these things and capture the ones that are actually the kind of meat,
criteria of you can prove its Amazon,
through the trademark Registry there's actually something more than one SKU for sale and there tends to be a logo associated with it so it seems like at that kind of.
Raises the bar on on what we included here but I think it's the right way to do it.
So it would be great if Amazon told us exactly what their sales all these things are but.

[12:38] Amazon satorius Lee secretive and they disclosed nothing about this there are two data sources out there though that we watch Pretty closely,
and you're the instruction I've talked there's all kinds of different ways these companies collect data and,
so one of them is one click retail and I believe it one click retail does is they have some ability with Amazon either directly or through their brand Partners to get into the,
that the data that's available to vendors and the aggregate that anonymize it and then look at some insights from it,
so according to them just recently here and the first week of October they have said that they believe Amazon private label has has done 300 million so far this year so if you feel kind of through the first nine months of the year in e-commerce and you've done,
300 million then it's probably safe to almost double that so because of holidays and call it 500 to $609.

[13:34] They don't Unfortunately they don't tell us which of private-label is in or not in that but there are they do kind of didn't break down the top categories and in this category as they don't include.
Kindle an echo so I'm kind of assuming that that 300 million number is does not include Kindle an echo so that's the the ones I rattled off but not kind of the devices that Amazon makes and manufactures.
So and then later in the show we're at little teaser here to make it worth your while to stay around we are going to have the second date of Ender on the show as a guest for the Steep dive to help us kind of really,
drill into this in and see if they can shed some more light on it.

Jason: 
[14:14] Yeah and I know Scott it's been a labor of love for you to keep the,
the infographic perfectly updated of course a lot of listeners will will know that Amazon very famous we added a new private label in the last month which is the Whole Foods private label so that's whole 365 from Whole Foods is now being.
Seemingly someone successfully sold on Amazon as a new Amazon private label.
And I think there was a recent retail dive article that essentially said they they sold 16 million of the 365 in the first month and you know it sent you a reply chain problems and sold out of a lot of their guts.

Scot & Guests: 
[15:00] Yeah I think there's some data I'm not a grocery expert like yourself but isn't there data that that that actually for Whole Foods it's a pretty material part of their sales I think I've seen anywhere between 20 and 30%.

Jason: 
[15:15] Yeah yeah and I'm not exactly certain what the breakdown of Whole Foods is the.

[15:22] Like at the top end of a grocery stores there's there's folks like all the annelida land and Trader Joe's that are like 60 to 90% private label,
when you work at a traditional grocery store like a Kroger or Walmart you know they're there somewhere in the twenties and so you know I think Whole Foods is a little higher than a traditional store but but not in the in the Aldi's base yet.

Scot & Guests: 
[15:47] Okay cool before we got our guests on I think the questions that come up the most I just want to kind of,
pink I'm off you just to get the conversation going here so a lot of this gets started because of that,
battery data that's out there that shows that Amazon essentially came out with a private label battery this is like you know,
typical household batteries like double a triple a CD in that kind of thing and it quickly became the number one seller,
so it's a really kind of Sheriff from Duracell and Energizer in those kind of guys so if your brand out there,
and your help as we talk on the show brands are in a different variety of of their current Amazon strategies summer taking a deep I want to do everything so we had for example dorel juvenile while there,
they are doing everything they can on Amazon so that's kind of that I'm going to jump jump into the deep end of the pool and then we have folks dipping their toe and then we have folks there just kind of sitting out on the sidelines when it comes to private label what's your advice you offer to France.
Wooden Amazon.

Jason: 
[16:52] Yeah well so busy brands of the super broad term.
You know I'm I'm answering in terms of the kind of categories were talking about on the show tonight so food and cpg and health and.
Mostly the basic sides of a parallel so you know if if you're talking about Gucci is a brand my answer might be a little different.
But but in general brands have two problems have the problem they know about in the problem they don't know about with Amazon right like the probably know about is.
Amazon is a super-powerful fast-growing platform it's now gotten in their space and making products that compete with him right so so Amazon being a private label competitor or a.
Or you know I often talk to them about being at 8.

[17:44] Brandy manufacturer competitor as opposed to a private label because many of these these products that have a much higher value prop than just a private label.

[17:53] You have to address that the problem that a lot of Brands aren't aware of him and certainly should be aware of is.

[18:00] People just shop different digitally in digitally has fundamentally changed how people shut up and huge.

[18:07] Proportion of of North American consumers.
Are using digital to help them make purchase decisions and so you know Amazon scary both because they're good at Selling Stuff digitally and they're making their own stuff to sell and in so in general when I talk to her and I say hey.

[18:25] First thing you need to learn how to do is be great at selling digitally and you should use Amazon as an example right and so you know in almost any category you can pull up the.
The Amazon label version of their pdp's and compared against you know who you think of is a market-leading national brand.
And you'll just see how much richer and better executed in much better content is on the Amazon PDP so those are really.
Templates for how to sell digitally.
And if you're Brandon most of these categories were talking about I do believe you need to be on the Amazon platform that's where telling the consumers are that's where bunch of the money is.
You know depending on how many Prime members you believe Amazon has does in the most locked in consumers in the marketplace and you're only going to reach him.
If you're on the Amazon platform so even though animal Amazon's a friend of me in general.
I think you need to be on that platform and I think you need to be using that platform to build your chops around digital merchandising and digital selling.
And so I think that certainly a key you know part of consumer shopping different digitally.
You know you need to be thinking differently about how you differentiate your products in in the store it was about the point of purchase.
Packaging in the displays in your promotion strategy International television campaigns.
In the digital world it's a lot more about trust transparency social proof there's a lot of new currencies that you need to start developing and there are things.

[19:57] That you have competitive advantages on because you're this well-known will use National brand so it should be easier for you to collect ratings and reviews and develop social proof then it is for a net new brand launched by a.
A retailer that no one shot from before so I certainly think there's opportunities to improve your your digital merchandise saying that leverage your your core strengths in.
In doing all this I think it's super important that you have a direct-to-consumer.

[20:29] Portion of your business so if you already selling direct-to-consumer you ought to be using that channel as your learning lab you ought to be doing constant s and evolution and different.
Content in in.
Different presentations to really nail how people want to shop for your product digitally if you're not in direct to consumer.
It's time that you start doing some direct-to-consumer pilots and I'm not saying that because you're going to sell a huge amount of direct to consumer product and make a fortune in most cases your not but you need.
When you sent through those wholesalers in those retailers you're basically disintermediated from your consumer and in this new digital world,
you need a direct relationship with this consumers to understand how they're shopping for your product and what is resonating with them and what's not so you need a direct-to-consumer channel if for no other reason than to be,
a learning lab as you figure out the best practices for for all of these things and then lastly I'd say hey while you're losing sleep about your customer shopping digitally and buying the Amazon version of everything,
don't forget about the other thing you should be losing sleep on you know which is this is coming wave of Auto replenishment and just fundamental changes to the way people buy stuff and there's tons of stuff that consumers Buy.

[21:44] Explicitly today when they run out of toilet paper do they run out of dish soap that they're very likely to get implicitly tomorrow either because there's a sensor in there their toilet paper roll or a camera in there kitchen or,
microprocessor in their in their dishwasher and you really need to be thinking about,
how you're going to preserve your current market share and hopefully grow it in a world of Auto replenishment when a lot more of those decisions become.
Implicit instead of explicit so that's a lot to chew on.

Scot & Guests: 
[22:17] Yeah and maybe taking it up even another level I found there's like this a rational thing,
Amazon causes so much fear it causes a rational illogical,
thinking in a weird way I'm so serious what I mean so a lot of times people say I'm not selling a brand will stay within the framework you outlined of we were talking about here on Amazon because of the,
Yep they're just going to take my data and create a private label but then I'll say maybe it's a cpg company I'll say well you're in Target Walmart,
grocery stores and Costco and your products right next to a private label it why why does it bother you so much on Amazon when you've lived in a private label land for a while but what's your,
do you run into that in like what's your how do you why are they why are there not able to rationalize heads.

Jason: 
[23:08] Yeah I do and again it's a devil they know versus the devil they don't I totally agree with you that it's irrational and and when you call him on it you know they have trouble articulating why it is different.

[23:22] The other one that that comes up a lot that's in that that same boat is like.
You know I always ask clients when they say hey I don't want to sell on Amazon cuz I don't want to get them my data if.

[23:33] If you're in the diaper business and you're saying you don't want to sell an Amazon because you don't want Amazon to get your diaper do you believe that Amazon's not getting a very queer to look at the overall diaper Market without you like.
You have to be a really large part of.

[23:48] Of the market to feel like you're somehow keeping Amazon from Market visibility by staying off the platform like in most cases that.
You know you're you're doing yourself more harm than you are Amazon there they're going to figure out all of those consumer categories whether you're there or not and so you know if,
you probably need to be there again if your consumer Products Company.
Amazon has 240 million consumers in the US there are 240 million households in the US.
So that's a pretty big Market to be overlooking that's like saying a bank robber and I don't want to rob banks because I don't like them.

[24:30] It's where the money is right now and so for most brands you need to be there you do need to understand that you are potentially enabling a competitor and you need to do it in a smart way,
but I think most people that are staying away do so you know partly for irrational reasons.

Scot & Guests: 
[24:48] Yeah and the other one is I've given these talks about this stuff and then after someone always comes up and they say we're actually,
it's either the horses out of the barn door it's like about to leave the barn in those say don't tell anyone but Amazon's approaches to be the private label manufacturer for axe or we're actually the guys that makes a battery and how do you feel about that in,
I don't know how to answer that I can kind of see both arguments I'm curious I'll reveal kind of how I think about it but I want to hear how you think about it first.

Jason: 
[25:18] Tricky make me answer first.
Yeah so that's one where I generally and again there's exceptions and every Market but in general I would say no don't do that in the reason I would say that it is,
because manufacturing private label products for other retailers is increasingly becoming a race to the bottom,
you are just going to be a commodity manufacturer and your Expediting Amazon's ability to build their own customer base and test the value props,
for themselves and the best you can ever hope for is to be in a bidding war against everyone else in the world that can manufacture that product once Amazon's won all the customers and so in general.
Well well there is short-term gain and you know you can protect some of your manufacturing capacity to cut other about wise be at risk by by partnering to be the private label manufacturer that's not a way to win long-term I mean you really need to think about the shift that's happening,
every retailer is turning into a brand every brand is turning into a retailer,
and in that world if you are making products for someone else that owns the relationship with the customer,
you are never going to be in a position to control your own destiny you're always going to be you know in a super price competitive situation and it's it's just,
not something that I generally recommend for both most brands.

Scot & Guests: 
[26:46] So the counter argument that I've heard from Branson in this is it's interesting is well we're going to we're going to.
Go ahead and make that because,
we want to it's a hedge little bit we want to see how successful they are and we want to learn from what they do and this is the only way we'll see sales of that item is if we're actually making it so,
there's there's something Buddy there that's kind of part of that short-term wind that I think you're talking about but then I do think that they.
Then they always say you know like.

[27:21] Amazon won't be able to visit outside of batteries but like lingerie I've had someone say well you know where the number.
Two lingerie manufacturer Amazon can't do this. They can't possibly do it and I'm kind of taking over 15 to 20 years I've heard that Amazon can ever do this thing alive,
yeah it is turned out not to be the case every single time so,
that does make me a little concerned when they kind of had the bravado that there are going people that can make this thing this widget.

Jason: 
[27:52] In general in this isn't universally true but like in Moses Brands you end up with two big brands that I bought a market share of number 1 and number 2 and in most markets there's an unknown number 3 that is really the private label manufacturer in in in some markets that.
That number one very often has hasn't made a decision that they're not going to manufacture private label for anyone and so you certainly see like PNG you know publicly say that they don't manufacture for folks,
the most often that number three ends up being the private label manufacturer and they do so be the reason that they're there.
Doing it instead of the number two is because they're just willing to do it for less money,
do you know if it ends up being a commodity manufacturing service that you're providing and this notion that you had some technical proprietary manage and that you know anyone else isn't going to be able to make what you make or or Amazon in particular isn't a meal of the deal with the complications in your category like,
every one of these categories has great complications and there are Technical differentiators and there are IP differentiators.
But what you say to all those barriers are lower barriers than they've ever been before and they're only going to get lower over time so that you know relying on that to be your mote um is pretty risky.

Scot & Guests: 
[29:17] Yeah and um just help blisters kind of put a little bit of math on this so if I am one of those Commodities manufactures what is that like a 5% margin business certain kind of single-digit.

Jason: 
[29:29] Depends on the category but in most cases yeah you're thrilled to make 5%.

Scot & Guests: 
[29:34] And then if I am a if I'm a brand and I'm selling through retail then that's 15 to 20% kind of a margin type business.

Jason: 
[29:44] Most typically exactly.

Scot & Guests: 
[29:46] Identify my grandson direct now I'm taking all that margin that get you all that that Mark up that retail enjoys which is usually somewhere between 30 and 50% I'm adding it to my 15 and,
that's kind of like now I'm Into You know if this 60 - 2.

[30:03] Maybe 50 to 65% margin on this is what I kind of think about that model this is why Amazon is doing it right I mean they can they can they can get a lot more margin that can pass,
two thirds a third of it on the consumer have a lower price keep 2/3 and no action on a per-unit basis be ahead of the game versus being a retailer so that that's why,
private label exist in an Amazon. The first one to discover this they just have the data to kind of go about it very quickly.

Jason: 
[30:32] Exactly.

Scot & Guests: 
[30:33] And then the last question before we get to our guests so we also have a lot of retailers to listen to the podcast what book should they do if they're not doing private labels that something the Explorer should they take the opposite,
all in and kind of take a page out of the P&G Playbook and say we're not going to do private label will have just Brands only here at our retail shop.

Jason: 
[30:55] I'm looking forward to seeing that retailer that would be fun to watch but in general yeah,
I think it's going to be increasingly difficult to make a living selling other people's stuff and when we will get successful retailers across the board there are already selling a ton of Their Own.
you know we talked a lot about Walmart being the biggest retailer in the world like the second biggest retailer in United States is Costco Costco has less than 10% of the number of stores Walmart has any other the second largest retailer,
in the usn there's a variety of reasons behind that.
One of them is that the majority of what they sell is is private label product that Kirkland product in a few other brands represent the majority of of stuff that they sell in they they executed,
very well they have that really interesting methodology of partnering with national Brands to launch new products and deciding if and when they'll they'll launch a house version of.
Of those products in and they they've mastered that process along before Amazon got into the space when you look at the most terrifying grocery retailers that are entering the us right now and scaring the bejesus out of the traditional.
Grocery retailers there their businesses that are predicated on on selling Almost 100% private label products,
me know you got the one that us consumers will be most familiar with already is Trader Joe's in that space you look at traditional wholesalers like in in categories like Office Products or or consumer electronics and Best Buy has a stated strategy to have over 50% of their stuff be.

[32:42] Be brands that they own it just very clear to to be a successful retailer moving forward,
you mostly are going to have to sell your own stuff that you know.
All the Amazons going to continue to be an aggregator of everything it seems likely that Walmart's going to continue to be a meaningful player and aggregators of everything but outside of those two players.
There's not a lot more room for.
Wholesale aggregators of products in so your long-term play your long-term viability is probably at least partially predicated on your ability to build brand that consumers want,
and it will cause them to select you versus someone else and then I would.
I would reiterate that that same Auto replenishment conversation I talked about with the brands if you're a retailer and you know.
A bunch of the products that drive trips to your store or.
Those things in the middle of the store that are going to become you know Auto replenishment products you need to think about how you're going to survive in a world in which,
no one comes to your store to buy toilet paper or dish soap anymore,
you need to think about a water world in which you know when people are shopping predominately opolis it's much harder to sell impulse purchases and so there's a whole set of,
new business problems you need to be thinking about as a retailer in in particular in this Grocery and food category and cpg we're seeing the tsunami of curbside pickup buy online pickup in-store digital order ahead however you want to look at it there is overwhelming evidence that that's going to be a rapidly adopted model in North America and you know that fundamental.

[34:20] Lead changes a bunch of the value props and so have your retailer you need to be thinking about how you win in a world in which curbside pickup is a meaningful part of your,
your business.

Scot & Guests: 
[34:31] Jason one of the big bang moments and Amazon private label happened back in May when Mary Meeker had a slide about Amazon private label in her annual internet update,
that's why I'd showed some sharks that had Amazon baby wipes and Battery offerings and that they had become top sellers so this is behind Brands like.
Duracell Energizer in Panasonic where they were they were out selling you know kind of the name brands not the battery story and I know now that it came out in May with the Meeker presentation I've seen it,
either tens or hundreds of times out there and I really think of it as the shot heard round the world for Amazon Private Label Amazon have been doing private label for a long time,
but that that one kind of data point or especially around the batteries has come up in a probably with me,
30 40 50 times with brands that they were just really shocked by all that and you know if you look at that slide and look at the,
bottom attribution you'll see that that data is attributed to 1010data,
and to join us in our conversation about Amazon private label works cited to have Sameer bhavnani and Tim Wilson from 1010data and they're going to help us peel the onion on this welcome to the show guys.

[35:41] Well thank you hey guys thanks for having us very excited to be talking about Robby Thompson shot heard around the world.

Jason: 
[35:51] Exactly but that that is a big-time right I would I would imagine if you're in the date of publishing business and Mary Meeker quote you that's that's about as good as you can get.

Scot & Guests: 
[36:03] That's basically summoning the mountain right there this is good as you can get it's also a very moment because you realize very quickly,
who actually knows Mary Meeker is excited for you and who like my mother has looks at you like what are you talking about but.
For me it's inside it was very exciting.

Jason: 
[36:24] That that's a tough one to explain to Mom I totally get it in for those of you that haven't seen her presentations they're usually like one or two slides and maybe like one data point in it so if you're that one data point it's huge because you're the only thing she's talking about.

[36:40] Plus or minus about 300 slides in a 30 minute presentation.

[36:46] But she makes it work.
So before we jump into all that though there's always like to get a sense for how you guys came to our awesome industry can you give us kind of the lowdown about your your careers and how you ended up at 10:10.

Scot & Guests: 
[37:02] Sure guess so this is Sameer I'll stop. If you don't mind and the bulk of my career was spent at a research house called MPD.

[37:12] And after spending I'd say almost almost 10 years that's as an industry analyst over at MPD I move more into the business side.
And then a couple of years later my friend Tim who's with me today call me often told me he was starting a company.
Who is focus was going to be on tracking what consumers are buying online and he wanted to know if I wanted to join him and I said yes and I'm going to let him see the history from their my history is I started.
Investigating what people do online little over a decade ago at compete who is required by TNS and then kantar.
Today I believe it's known as millward brown digital and I was so frustrated with the fact that a lot of our our studies.
While they were great it was always just a little short with understanding the lower funnel and exactly you know what it is that people were buying so myself along with Aaron Mendez.
Started the company in Quantico focused on what people buy online and we did this back in 2013 thought maybe we're a little behind the curve turns out we're a little ahead of the Curve.
And during my first call was with Sam and so we we broke one Co-op and then eventually joined the 1010data family.
Help round out their assets around the consumer purchase activity so today we have extreme email receipts.
Credit card data debit card data.

[38:44] We use all those behavioral Deus Ex to get a clear picture really but you're able to paint a pretty good Mosaic of what's going on.
Both online and in-store and in that consumer purchase data is really the Crux of what were me Sam and the rest of the team are working on commercializing and bring it to the market.

[39:04] And if you're unfamiliar.
Internet were headquartered out of New York City and essentially what we are is an out-of-the-box inside right so we we help companies manage data.
And we also help companies understand where consumers are spending their money.

Jason: 
[39:29] Awesome and you alluded to it a little bit but in terms of how you get your Insight I tend to think of you as sort of a large panel that then augments that panel with third-party data,
so

[39:45] So that the panel is sort of the quick stream in the email receipts and then your your augmenting it with some some third-party data is that why that right or can you explain to us.
How you get your your data.

Scot & Guests: 
[39:57] Yes.
Yeah absolutely so we have we have multiple inputs you know really one of the things that I've learned from doing a while is that there's there's no such thing as a perfect date is that they all have holes.
They all have diocese etcetera so it's really about the more different the more information you can collect the more confident you can really be with what's happening so.
We have we are actively scouring the internet or third-party data listening to analyst calls for any you know publicly traded companies we have,
and we use all of the information that's available to us as part of our data methodologies for the projection of our estimates.
However you know we do have our limitations in end you know we use our panel.

[40:49] The way every other handle this company does I wouldn't say that we augment it necessary with with other third-party did a research but I would say that you know third-party inputs are an influence or an ingredient and the date of methodology. Does that make sense.

[41:07] Here's a great here's a great way to kind of think about it so there's been a huge shift,
in the measurement in the measurement world in the measurement of consumer behavior and that shit is essentially has been traditionally if you have a panel,
what that means is consumers are opting into some kind of panel and they're going to get coins in exchange for answering survey questions of some nature,
and that has been Houser the research base is really kind of measured consumer sentiment for decades and decades and there's one kind of fatal flaw in that.
Methodology through well and that's very simply is that people forget so if you ask me where I had dinner with my wife Last Friday Night.
There's a good chance I might not remember the exact name of the restaurant right McDonald's,
and so what what has happened now is that the industry has shifted and because of.
Sort of the move two words digital we're now able to measure actual behavioral data right we're actually able to actually measure what people are actually doing.
Not not what people are telling us they think they're doing or what they want to be doing.

Jason: 
[42:25] Sure and into II like to attend to call that like sort of.
Observed Behavior instead of stated Behavior so like you're not asking people where they shopped you're you're getting access to email boxes and you're actually seeing order confirmations for example.

[42:42] Things like that.

Scot & Guests: 
[42:42] Correct correct.

Jason: 
[42:45] And in general like we're going to talk a little bit tonight particular about.
Your insights on behaviour on Amazon and I tend to think of their being sort of,
two approaches to getting insight into how people shopping Amazon they're sort of starting in the consumer and working backwards which it you know you're going to see all the consumers behavior on all their sites and,
and because a lot of consumer shop on Amazon you're going to see a lot of their behavior on Amazon and I,
I think of you guys in that space and then there's another set of entities that try to,
scrape all the Amazon pages and data that's on the Amazon pages and sort of reverse engineer.
Consumer behavior from the Amazon site itself is is that a affair taxonomy to be thinking about her.

[43:36] You guys do both.

Scot & Guests: 
[43:36] I think you said that you said that pretty much perfect yeah we do the former we can certainly our focus on the former.

Jason: 
[43:42] Awesome well I think that gives us a pretty clear basis to to dig into the reason we're all here tonight which is talk about Amazon private label.

Scot & Guests: 
[43:53] Yeah it in Atlanta one quick follow-up are your guys customers retailers Brands both any any kind of.
You know sizes at like 5 kind of companies or is it run the Spectrum in any kind of guidance to help our listeners can understand who your customers are.
The bulk of our customer sponsor into a few buckets one is on,
when I would say is well sort of well-known Merchants Tire retailers II is consumer brands.
And the third would be financial institutions that since the makeup most most of our Revenue.

[44:40] Got it so retailers are kind of using it for market share and Allison and selection analysis or assortment is that is that these case retailers.

[44:50] Yeah so the primary use case for Merch are retailers would be around assortment right people are buying they they want to know what they should be out there shortly.

[45:03] And then Brands is probably a market share game so you know how am I doing against my competitors on Amazon overall do you guys do,
is this purely online data or is there an offline component kind of like I know the NPD guys have an offline piece as well.

[45:20] There's their stuff there's booking online as well as an offline component.
Certainly the the weaning that we have is this more towards sort of a digital art e-commerce piece of things and what brands,
surprising how little Brands know about the size of markets and the growth of markets are categories within e-commerce so what we've been doing over the last couple years really has been.
Give me brands of blueprint blocking and tackling how big is my category how fast is it growing.
Which retailers are winning in which categories and Amaya tanning a fair share of that total pie,
that's a really good Segway into Amazon private label which is essentially a brand let's start it kind of the what I called that shot heard round the world take us through the wiping battery data and that data you know if it was in,
makers deck in May for all I know it could be a year old and I don't think it had the Lincoln time on it so if you have any new data on there that would love to hear kind of an update as well.

[46:28] Shirt so just I'm going to take a shower real quick staff a try just to talk about just to talk about private label cuz you know some people really get it and some people really don't get it right answer private label has been.
A real affordable price point high quality products for decades and decades Right grocery store chains have been doing it for you know.
And,
what's been happening lately is Amazon Amazon first four actually into private label began with its reading device right with the Kindle in consumer electronics,
and from there Amazon expanded into,
they had like for example the Fire tablet they did a streaming TV stick and then they did the Amazon Echo right which is a revolutionary type of device that everybody's playing catch up,
and then the success that they started having in electronics LED them to start looking at more traditional.
Let's let's call it household essentials type of products where you know they look at where is Walmart on the wicked Side Great Value brand.
I'm so Amazon came out with two lines one one was once called amazonbasics and the other is called Amazon elements and those.
Those Brands essentially well what I would say.

[47:59] First start to cause fear with with some of the brand partners that Amazon had had and basically.
If you look at something as essential as a battery it's been dominated by basically three branch right you know Energizer or Duracell Panasonic.
And what Amazon is able to do is there a little look at you know years and years.
Batteries or something that every single household has to buy on a very frequent and regular Cadence and they came out with their battery brand and there were three able to do that actually advertise that sell it for a little bit cheaper than the brand name.
Are offering and categories like.
Baby wipes or batteries and I think consumers tend to think that they have for the relative same quality yeah they do and mean.

[48:56] One of the things that's interesting when you start thinking about the Amazon private label approach right they have they have ruled out in many different brands since then.
Amazonbasics brand is.
The largest by far right by our data they're on track to do about 500 million this year in us alone all online sales for amazonbasics and amazonbasics brand launched quite a long time ago.
Right now I think of sometime around 2009 and.

[49:27] Today with amazonbasics brand is really lot of the electronic or household Basic Essentials where you don't give me.
care too much about what it is he put in for example Amazon essentials as well the closer or what they did with the diapers cetera.
Any amazonbasics category they have really mastered exactly what it is the customer wants you can look at the date of one of the things that's interesting to me.

[49:59] When I look at.
Example that the battery category would be you just look at the number of skus that are carried and when you look at it the traditional battery players that are out there they carry literally hundreds of skews.
On Amazon whether that's through the marketplace which may or may not be under control depending on how there but the strategy is.
Amazon Basics battery count I think they have something in the neighborhood of 20 skews right and they're getting the great majority of their sales from just a couple of them so they really been able to.
Mega sniper based approach.
YouTube watching these products and they're starting to gain more more confidence you can see that as a start to roll out not just with household essentials but going into,
Health going into apparel and no surprise that they see me rolling out private label and what appears to be all the biggest categories on mine the only category.
Really huge online and growing quickly but they have not entered yet.
Would be path right which is interesting because the 90s.
If I'm a pet food manufacturer frankly if I'm any consumer product manufacturer start to wonder if if they're not competing with me right now what are they.
You know I would not be surprised at all if it was some type of pet food that was rolled out here just because of the size of the category to go straight there.

[51:28] Cool and then on batteries in the chart I saw showed something like Amazon basic battery is like 30% share and the Duracell was 20% and Panasonic was was like 12% etcetera,
that date is still holding and,
another kind of corollary so so I agree Amazon uses data too kind of come out with a better offering and a price point and packaging and stuff but then,
you know the other thing do you guys have any point of view on the search experience in it how they're kind of service in their products versus competing ones.

[52:04] Batteries is a good Battleground to talk about I guess yes 01 1 comment right.
When we put out the dead a few months ago was I think I was 30% or so they've grown it so close to 40% so they're certainly trending upwards.
In terms of an Amazon batteries selling compared to Duracell Panasonic and Energizer in and the rest you see the client everywhere.
At some point though right there right at some point people are going to buy the brand name rice like my wife will.
She buys she buys Tide laundry detergent or she won't buy a generic brand or any other brands always got to be tied and so in many ways.
A portion of that business is always going to exist.
And Amazon will sort of like 10 Mustang right will take a sniper based approach to figure out what the what categories are growing and how can I do something that's different and cheaper at the same quality.

[53:03] I didn't do you so batteries or I Amazon's at 40% how about wipes I think you had them,
they were number 3 in the last time I saw the data and their Huggies and Pampers were ahead in the Amazon was that kind of a 15 16% of day if they displaced either of those guys at this point.

[53:19] They're still growing,
but they're at they have it they haven't they haven't displaced the market leader.

[53:34] Yeah until you've had your filter 615 there's guys at work then right now I can't even can't remember their names I don't have 3 so I can I can keep it all straight are there any other category.
Are there any other categories like batteries were you look at it and Amazon his kind of created an a leading position with without a lot of people knowing about it that that jump out at you.

[54:00] So those are those are by far the biggest ones and.
You know if you take if you look outside of Industry we talked about Electronics in the beginning.
Amazon is completely basically owning the home speaker space right now with the with the ECHO line of products whether it's the weather it's the portable Bluetooth speaker the dock or the.
The show or the actual traditional Echo and if you look at tablet space right which is one apple Amazon's gone in there with a a lower price,
good enough auction and not lower price by.
10 or 20% but lower price for like 60 70 80 per-cent and so they've really offended consumer electronics sales through the point which is fascinating that companies like Best Buy.
Bed Bath & Beyond Target cetera are starting to starting to have been selling Amazon branded consumer technology products.

Jason: 
[55:02] Yeah which is super interesting when you think about it that that those competitors are then willing to carry cell that you know are viewable trojan horse for all of Amazon's other products.

Scot & Guests: 
[55:13] Best Buy and they buy an echo and then that person takes their house and what do they do with it themselves Amazon batteries.
Yeah and that's it you know that's what made it so it gets me so excited.
I'm getting into the home there is the Walmart Google partnership and the Google at home.
I'm very excited to see what the shopping experience is like for all of us 5 years now because I don't know exactly what's going to be today.
Voice searches is a new Pioneer at and I expect up the Google Walmart partnership to be.
Very formidable.

[55:59] People people we talk a lot about Amazon and for good reason. You know they spend more on R&D spend something in the neighborhood of ten billion dollars a year.
Justin research which it's amazing what you can learn how to.

[56:15] Yes they're massive yes they're huge let's also remember we know from the public earnings there roughly 95 billion in sales here in the US.
Which is.
One third of the size of Walmart $20.
Will Amazon and Walmart growing you know High single digits.
So it some point those lines will really start to converge but I do think it's important to get super excited and for good reason with all the Innovative approaches of Amazon brings it still good to remember there.
A third of Walmart in Walmart has within the last year I think we would all agree started to take online very seriously and invest heavily in the channel.
Won't we'll see if those Investments pay dividends but it seems like 2016 is one Walmart kind of said alright these guys are for real let's do something about it.

Jason: 
[57:22] Yep yep I want to unpack briefly the.

[57:30] The size of it Walmart vs. Amazon as is somewhat debatable depending on the lens you look through so so for sure when you look at the earnings you guys had it exactly right but I think most people would would actually talk when they're comparing him with think about.
How much goods Walmart selling versus how much good the Amazon selling and then you'd be looking at Amazon.
Gross merchandise value versus their their revenue and I know Scott was probably biting his tongue cuz he's a guru in all this but,
if you if you actually take Amazon's gmv and compare it to Walmart's gmv and you take grocery out of Walmart's DMV.
Because until very recently.

[58:11] Amazon didn't have much grocery Amazon's probably bigger than Walmart right now in non-grocery gmv but.

[58:23] Be that as it may it's it's for sure for sure super interesting and that good.

Scot & Guests: 
[58:30] I think the key point right is that.
Whomp Walmart's Walmart's one of their retailers that's not that's not resting on its Laurels and then actually trying to go on the offense to better compete for the long-term with Amazon on like a handful of other retailers.

Jason: 
[58:47] For sure I think there's tons of evidence there and we recently talked about a lot on this show it's this year that was the they were calling at the Godzilla versus King Kong battle.
Most of the rest of the world just trying not to be a destroyed build in that in that fight.
So it's going to it's going to be fun to watch but before we got into that you were shifted a little bit to the echo versus for example of the Amazon batteries,
into me the actor was interesting because in my mind that's.

[59:25] The echo has jumped this really scary Paradigm that that it doesn't seem like a lot of other Amazon products have yet.

[59:33] It may have started out Life as a private label home speaker but it's not private label anymore it's the aspirational brand and it has a unique selling proposition and features and functions that the.

[59:46] The rest of the market is struggling to to match and I certainly think of your product manager at Sony you're not talking about the echo as the.

[59:55] As the private label version of your product your.

[59:58] Trying to figure out how you get a piece of that the Amazon Alexa market share for child you guys agree with that like that seems like the difference between batteries wear.

[1:00:08] Hey there just trying to let you know they're not trying to create the world's most desirable battery although I'm sure you know in some circles they've they've done that they're just trying to fulfill a bunch of demand.

[1:00:18] With a a battery that's it at the right place at the right price with the right delivery vehicle whereas the the speaker is really created this aspirational brand that people seek out and give preference to.

Scot & Guests: 
[1:00:32] Yes I'm going to I'm going to make you feel real good I think you're spot on there and if you think about companies like Google and Sonos there now in other now essentially licensing the echo technology to put into their own products.

[1:00:45] Writing so what happened like when I go into the spaces it was it was highly disruptive and one of the things the brands.
Didn't know because Amazon doesn't divulge right bulbs for example Echo sails they won't they won't tell you how many Echoes they sold in a given year. Is it really didn't,
know what it hit him until they got hit with a tsunami.
And they sought writing this on Masters with a flattening of the crimes in a space that up until the echo had launched had been growing like gangbusters for themselves.

Jason: 
[1:01:22] Yeah answer that I guess that's the perfect question we love to know if you have any insight I eat everyone's always speculating about how big the the echo businesses have you guys tried to size that.

Scot & Guests: 
[1:01:34] Yeah echo echo through the first half of the year was about sinkholes about 150 million dollars and.
If you look out right and this is just just kind of red conjecture and sort of a rough gas based on kind of market knowledge,
estimated going to end up end up being in the 350 to 400 range by the end of the year calendar 2017.

Jason: 
[1:02:00] Interesting.
Imagine part of it comes down to what you even count is that going to cuz it's your point if they're not licensing technology to Sonos and I was at CES last year and it was in you know hundreds of products like you.

[1:02:15] Like that the overall revenue from that that that property for Amazon could even be much larger than there their own direct sales.

Scot & Guests: 
[1:02:23] Yeah it's whatever 25-year career it's one of the most Innovative called inventions that have ever seen.

Jason: 
[1:02:35] Yeah so here's the magic question.

Scot & Guests: 
[1:02:39] The revenue.
And they shouldn't.

Jason: 
[1:02:56] Yep so.
Any other products in the Amazon Echo System particularly the Amazon private label products for threatening to to sort of you know a game that same status are you like.
Are you seeing any early indications from from anything else or there any product you you are keeping an eye on because they're there early fast Runners what's the.

Scot & Guests: 
[1:03:21] Within a coordinate.

Jason: 
[1:03:22] No with other Amazon products to achieve the kind of breakout success the echo hats.

Scot & Guests: 
[1:03:28] One of the other things the moving away from technology that Amazon is about to disrupt.
Is basically help health and wellness and so Amazon.
I seen a few things like protein powder or any kind of supplements.
There's there's a lot of question in terms of consumer healthy consumer safety and consider most important consumer transparency right like what's actually in here where does this product.
And if anyone listening has not seen the page for the Amazon tumeric product.
You've got to go check it out it's besides the fact that it's gorgeous you look at this and they're taking something like tumeric right and they're basically saying here's here's where it comes from.
Hear the benefits from it and it's one of the most transparent product detail pages that I've ever seen in my entire life.

[1:04:28] And that's just sort of like their first foray into that right and that's that's something that's you know it's not as boring as you know if they have battery or pot and pan right if it's something that you're actually actually ingesting putting your body.

Jason: 
[1:04:42] Yeah for sure and it makes perfect sense that you'd say that to a category that Amazon's focusing on cuz if anyone has seen a picture of Jeff Bezos lately will see that he's getting totally jacked.

Scot & Guests: 
[1:04:54] And you're absolutely right I don't know if it's the tumeric or the CrossFit.

Jason: 
[1:04:59] Yeah so any like any early data on any of those health and wellness products I got it was it was vitamin E the first.

[1:05:08] The first supplement in that family or you know and is that like catching any meaningful market share away from the the big player.

Scot & Guests: 
[1:05:16] Yeah I think so I think it was we haven't published anything yet just cuz they're sort of.
Just starting I think I think we still need it I think we still need several more months of data,
affordable to do that but I can I could almost be a picture conversation we're having with our marketing seems like first half of next year we got to call the state on how Amazon Student Health and Wellness.

[1:05:38] Yeah it is a good day also started off very slow roll out right like the last time they enter.
That's an answer something I was broke this personal was when they lost their first version of the Amazon elements diaper.
Right back in 2014 15 so they're being cautious in what other category think about an additional help which is booming and they're being very cautious with their approach to be a little more aggressive and not quite as shy.
But their approach into fashion where they watched several different brands and in fact they're at their fastest growing private label brand is actually.
Clothing line name Scout and Roe which is up nearly 6X this year.

[1:06:22] So big they are going after all the high-growth categories online and in some categories like apparel they're being extremely aggressive,
watching a lot of lines.
Depending on the type of apparel line you're talking about its they're giving a different names of people can feel like they're connected to it in a little bit of a different way.
And in areas like health and wellness where it is.
You know something that I'm ingesting it's certainly very much more personal than something is a piece of clothing they're being very slow and deliberate with their approach which is the same way that they approached.
So I have no doubt that,
even the tsunami you see with an elk and wellness sector online Amazon elements will be there soon and I'm also curious to see what happens.
Ri