Amazon slashes seller fees — What does it mean for the competition?
Tuesday, November 07, 2017
It seems Amazon's grocery takeover tactics didn't stop with Whole Foods. We now know they have a larger plan in mind, a plan that signals total food domination.
The brand, which is known for being the ultimate disrupter, recently announced new incentives for grocery store owners and online food wholesalers. It has slashed seller fees for businesses that sell nonperishable and inexpensive grocery items on Amazon.com. This is their subtle way to improve their online grocery selection for buyers and attract more sellers.
Selling low-priced packaged goods online can be difficult, but Amazon is working on making it a tad bit easier. The online retail giant announced that it would lower the fee on grocery items priced at $15 or less — 8 percent instead of the usual 15 percent — for at least the next year. This may lead to a wider selection of grocery products available onsite.
The company hopes this will incentivize sellers to list more products and keep prices competitive at the same time. If it works, it could widen its grocery appeal and attract people who are not yet interested in its offers. However, sellers need to cut their prices to match these offers. They will also have to find ways to make it a profitable sale.
While this is a grocery game-changer, some sellers are worried that this will lower their already thinning margins. There are online fees and changing algorithms to consider, which help Amazon but not always the sellers. They feel it's too customer-centric and provides no safety net for their losses.
But sellers also say that are learning from their mistakes. Instead of putting all their eggs in the same basket (aka Amazon), they are diversifying now. They have realized that survival depends on both physical and e-commerce sales. For the latter, they are also tying up with sites other than Amazon.
Amazon has paved the way for the modern grocery business. Amazon membership programs like Prime Pantry or Amazon Fresh allow businesses to sell at a wholesale price and help funnel the low-priced goods.
But the online retail giant has yet to establish itself as the ultimate grocery destination. That means buying in bulk from them is not going to take off just yet.
There are other considerations, too. The Fulfilled by Amazon (FBA) program makes a product eligible for Prime shipping, but Amazon warehouse fees jack up the price of an otherwise inexpensive product. That, along with Amazon's commission, means turning a profit can be difficult for sellers. Lower commissions would allow merchants to sell cheaper individual consumer products and bolster the e-grocery business.
Amazon now hopes to build out its grocery selections beyond these programs. A referral fee discount on grocery products, albeit for a limited time, may just turn the tide for them. Their biggest e-commerce competitor, Walmart, charges 15 percent for all online grocery items. Its subsidiary Jet.com charges 10 percent for most packaged foods.
Despite the skepticism of the industry, we cannot deny the fact that we have stepped into a growing world of digital retail. Amazon and Walmart are continually innovating their offers for sellers and buyers. Whether we are ready for it or not, online grocery shopping is here and ready to expand.
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