Ama­zon­wants Chee­rios, Oreos to cir­cle past chains

The Denver Post - - BUSINESS - By Spencer Soper and Craig Gi­ammona Bloomberg writerMatthew Boyle con­trib­uted to this story.

Ama­zon has in­vited some of the world’s big­gest brands to its Seattle head­quar­ters in an au­da­cious bid to per­suade them that it’s time to start ship­ping prod­ucts di­rectly to on­line shop­pers and by­pass chains such as Walmart, Tar­get and Costco.

Ex­ec­u­tives from Gen­eral Mills, Mon­delez and other pack­aged goods mak­er­swill at­tend the three- day gath­er­ing in May, Bloomberg has learned. At­ten­dees will tour an Ama­zon ful­fill­ment cen­ter and hear a pre­sen­ta­tion fromWorld­wideCon­sumer chief Jeff Wilke, who re­ports di­rectly to Jeff Be­zos.

Ama­zon is look­ing to up­end re­la­tion­ships be­tween brands and brick- and- mor­tar stores that for decades have de­ter­mined how pop­u­lar prod­ucts are de­signed, pack­aged and shipped. If Ama­zon suc­ceeds, big brands will think less about cre­at­ing prod­ucts that stand out in an aisle atWal­mart. In­stead, they’ll fo­cus on de­sign­ing prod­ucts that can be shipped quickly to cus­tomers’ doorsteps. Brands have been ex­per­i­ment­ing with such changes, so the Seattle event may well res­onate.

“Times are chang­ing,” Ama­zon says in an in­vi­ta­tion ob­tained by Bloomberg. “Ama­zon strongly be­lieves that sup­ply chains de­signed to serve the direct- to- con­sumer busi­ness have the power to bring im­proved cus­tomer ex­pe­ri­ences and global ef­fi­ciency. To achieve this re­quires a ma­jor shift in think­ing.”

Man­u­fac­tur­ers would have to re- imag­ine every­thing from the way prod­ucts are made to how they’re pack­aged. Laun­dry de­ter­gent could come in stur­dier, leak- proof con­tain­ers. In­stead of flimsy pack­ages de­signed to pop on store shelves, Oreos, Chee­rios and other prod­ucts could be packed in durable, un­adorned boxes. Plants could spit out prod­ucts for in­di­vid­u­als rather than trucks- full of in­ven­tory.

It’s un­clear who would han­dle the ship­ping, though Ama­zon of­fers a range of ful­fill­ment ser­vices. The com­pany de­clined to com­ment.

Ama­zon has been strug­gling to crack the food and pack­aged goods mar­ket — an $ 800 bil­lion cat­e­gory still dom­i­nated byWal­mart and other tra­di­tional chains. Ama­zon must con­vince brands that even though on­line purchases rep­re­sent a small part of their sales, e- com­merce is the fu­ture.

“Most of these peo­ple haven’t been in­ter­ested in ecom­merce be­cause e- com­merce has been such a small piece of their over­all sales,” says Melissa Bur­dick, vice pres­i­dent of e- com­merce at The Mars Agency mar­ket­ing firm. “But we’ve reached a tip­ping point. We’re at a time when com­pa­nies are ready to start fig­ur­ing this stuff out.”

Ama­zon is look­ing to in­flu­ence prod­uct mak­ers the same way Costco and other club stores con­vinced brands more than 20 years ago to cre­ate bulk sizes sold at a dis­count. “There was a big per­ceived penalty for miss­ing the boat, fear of miss­ing out on growth,” says Jim Her­tel, se­nior vice pres­i­dent at the mar­ket­ing firm In­mar. Just likeCostco, he says, Ama­zon will en­cour­age the changes by promis­ing in­creased sales, a pos­si­bly wel­come pitch for com­pa­nies strug­gling to rekin­dle sales growth amid rapidly chang­ing con­sumer tastes and shop­ping habits.

Ama­zon has al­ready forced some man­u­fac­tur­ers to rev­o­lu­tion­ize their pack­ag­ing. For years toy and elec­tron­ics mak­ers have pack­aged their wares to help pre­vent theft and to max­i­mize store dis­play. But the pack­ages’ tough plas­tic was hard to open, turn­ing off mil­lions of con­sumers. Ama­zon pushed man­u­fac­tur­ers to de­velop pack­ages that pop open more eas­ily. To­day thou­sands of “frus­tra­tionfree” prod­ucts are sold on its site.

Some brands will be eas­ier to per­suade than oth­ers. One could be Nike, which has an Ama­zon store and has been ex­per­i­ment­ing with sell­ing di­rectly to con­sumers. Nike chief op­er­at­ing of­fi­cer Eric Sprunk is sched­uled to speak at Ama­zon’s Seattle gath­er­ing. The event’s co- host is SCM World, a re­search and con­fer­ence group that serves the sup­ply- chain in­dus­try. SCM’s ad­vi­sory board in­cludes ex­ec­u­tives from Unilever, Kim­berly- Clark and Land O’ Lakes but­ter.

Ama­zon’s pitch comes as brick- and- mor­tar com­peti­tors try to blunt its mo­men­tum by en­hanc­ing their own on­line shop­ping op­tions. Walmart and other big- box re­tail­ers are ex­per­i­ment­ing with things like buy- on­line, pick up in store. Star­tups like In­stacart and De­liv make de­liv­er­ies from­stores to homes, help­ing re­tail­ers keep up with Ama­zon. Look­ing to match the quick de­liv­ery ben­e­fits of Ama­zon Prime mem­ber­ship, Walmart of­fers a free two­day de­liv­ery on or­ders of $ 35 or more.

Walmart and Ama­zon squared off last­week in Las Ve­gaswith key­note speeches at the ShopTalk con­fer­ence that drew more than 5,000 at­ten­dees, in­clud­ing ex­ec­u­tives with ma­jor brands. Marc Lore, who heads Walmart’s e- com­merce ini­tia­tives, touted the price lever­age of the world’s big­gest re­tailer that buys prod­ucts by the truck­load. Peter Far­icy, who runs Ama­zon’s mar­ket­place, said the on­line re­tailer would con­tinue to nar­row ship­ping times and talked up a fu­ture when one- hour de­liv­ery is the stan­dard.

De­spite the long re­la­tion­ships be­tween brands and tra­di­tional stores, Ama­zon has lever­age to con­vince man­u­fac­tur­ers to re­think their op­er­a­tions, says Ken Cas­sar, an an­a­lyst at Slice In­tel­li­gence.

He notes that Ama­zon has 300 mil­lion shop­pers and can make its own prod­ucts if brands aren’t will­ing to sell on its mar­ket­place. “Fear, more than any­thing else,” Cas­sar says, “may com­pel these com­pa­nies to pay at­ten­tion.”

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