Amazon Prime Day Could Come at a Cost for Grocers
Amazon, in an effort to retain profits, will charge grocery brands with “additional funding” if the products they promote during Prime Days (July 15-16) result in a loss for the internet retailers, but will waive the placement fee for Prime Day promotions, which typically are about $500, according to a report from CNBC.
The change was made to “fund the profitability gap” of products that Amazon purchases wholesale and sells on its own and to ensure profits from the historically low-margin products.
“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, which CNBC obtained. “If additional funding is required, it will be based off total unprofitable units sold for the duration of the deal.”
Amazon has increasingly focused on profitability in recent months, and this move shows it will protect its bottom line even if it means losing top-line growth. Other profitability moves have included shedding some unprofitable products, forcing manufacturers to change packaging and ceasing to source from smaller brands.
While no reason was given for why Amazon chose to focus this fee on the grocery category, the CNBC report speculates that it could be because grocery items are typically lower priced, but bulky and harder to ship profitably.
In the past, grocery brands that participated in Prime Day deals paid a one-time placement fee, but still had to fund the discounts that had to be at least 20 percent off, but the brands were not required to cover any losses that were generated from shipping or storage fees.