Report: Amazon Penalizing Grocery Brands if Sales Result in Loss for Amazon on Prime Day
Amazon.com is charging “additional funding” to certain grocery brands during this year’s Prime Day if sales of their products result in a loss for Amazon, according to an email seen by CNBC, and reported on its website. Amazon said the change is intended to “fund the profitability gap” of such products, which Amazon purchases wholesale and sells on its own. In return, Amazon is waiving the placement fee required to run Prime Day promotions, which typically costs $500 per deal.
“This year we’ve decided not to charge placement fees for inclusion in deal events, but instead we request our vendors to fund a [listing] if it’s unprofitable for the duration of the deal,” Amazon’s email to vendors said, according to the CNBC report. “If additional funding is required, it will be based off total unprofitable units sold for the duration of the deal.”
Total Retail's Take: Amazon's policy change seems to reflect a broader push by the online behemoth to squeeze profits out of its grocery category, historically a low-margin business. And it's making sure grocery brands cover losses on low-priced products sold, especially during Prime Day. Amazon, as we reported last month, is gearing up for a busy Prime Day, which will take place on July 15 and July 16. In addition to hundreds of deals for consumers and Prime Members, Amazon is also offering several promotion options to its sellers, such as Lightning Deals, a limited-time promotion that gets featured on Amazon’s deals page, and Spotlight Deals, which come with steep discounts of big brands’ most popular products.
The move reflects Amazon’s increased focus on profitability. As CNBC previously reported, Amazon has been aggressively blocking ads for unprofitable products this year. It's also eliminating unprofitable products from its roster and forcing brands to change their packaging to make them more cost effective, according to The Wall Street Journal. Finally, as Bloomberg reported, Amazon earlier this year abruptly stopped ordering products from smaller brands, in part due to profitability reasons.