Amazon Funds Profitability Gaps by Charging Grocery Brands
SEATTLE, WA - With Prime Day mere weeks away, everyone is prepping to ring the most profits using Amazon's platform—including grocery brands. According to a report by CNBC, Amazon released a statement alerting its vendors of a new approach where they will be charged additional funding if their sales do not do as well as expected—a move that protects Amazon’s bottom-line by preventing any loss in revenue.
“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 wrote in an email to vendors. “If additional funding is required, it will be based off total unprofitable units sold for the duration of the deal.”
In previous years, grocery brands could offer Prime Day promotions after paying a one-time $500 fee. This year, however, CNBC noted that Amazon could be attempting to “squeeze profits out of a historically low-margin business.” The “additional funding” Amazon is charging vendors would cover the cost of losses created by shipping, storage fees, and more, according to the news source.
“Amazon has traditionally allowed the grocery category to run on tighter margins, so this move could indicate that Amazon is becoming more profit conscious,” Joe Hansen, CEO of Buy Box Experts, which sells to Amazon, said to CNBC.
Prime Day starts July 15 and will feature Lightning Deals, Spotlight Deals, and exclusive deals for Prime members.
Will the new charges be a permanent fixture in Amazon’s requirement of grocery vendors and brands, and how will this affect these vendors in the long run? AndNowUKnow will continue to report.