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Amazon’s Target In Whole Foods Deal Is Ultimately High-Margin CPG

June 20, 2017: 12:00 AM EST
Amazon’s deal with Whole Foods Market certainly threatens low-profit-margin – around two percent annually – retail grocers like Krogers. But Amazon’s real target is not the stores: it’s the profitable products on their shelves. In other words, it’s the higher-profit-margin – 16 percent annually – consumer packaged-goods (CPG) companies that should be worried. Procter & Gamble and Colgate-Palmolive have grabbed large market shares because of an economic and distribution model – economies of scale, lower prices, and acres of store shelf space – that is now breaking down, thanks to Amazon. Its Amazon Basics brand, already gaining market share in diapers and batteries, could be extended to other high margin categories, and move into Whole Foods stores. That’s a significant threat to the CPG giants. [ Image credit: © Colgate-Palmolive  ]
Conor Sen, "Amazon's Real Target Isn't Whole Foods. It's Everything You Buy.", Bloomberg, June 20, 2017, © Bloomberg LP
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