Amazon is taking away the power of brand names, throwing another industry into turmoil

Consumer packaged-goods companies are cutting back on marketing, signaling complacency, analyst says

 

By Caitlin Huston, MarketWatch

July 11, 2017

 

Big brands may have given into the power of Amazon.com Inc.

 

Consumers influenced by Amazon’s approach are shopping based on price rather than the brand name, which is causing them to avoid physical stores, said James Cakmak, an analyst at Monness, Crespi, Hardt. While Amazon’s effect on physical retail stores is well-chronicled, Cakmak says that the major brands that are sold in those stores are now dealing with the results as well.

 

As Amazon AMZN, +0.13%   and Wal-Mart Stores Inc. WMT, +1.37%   make bigger pushes into the packaged-goods categories, brand names are spending less on marketing and backing away from their original models, Cakmak wrote in a Monday note. The $800 billion consumer packaged-goods category includes name-brand detergents, foods and personal care items, with large companies such as PepsiCo Inc. PEP, +0.73% Johnson & JNJ, +0.33%  and Mondelez International Inc. MDLZ, +0.54%

 

“We see these companies starting to give up, and that’s a bad thing for the industry, consumers and the country,” Cakmak said in the note.

 

In the past, these companies were able to dominate their sector by controlling how the goods were distributed and placed on the shelf at retail stores. With prime presentation in stores, the companies would spend heavily on marketing, which made up 20% to 25% of their budgets, to influence consumers’ buying decisions. 

       

Now, instead of fighting for shelf space, Cakmak says the companies appear to be scaling back spending. In his quarterly check with major advertising agencies, he found that consumer packaged-goods companies were spending less on marketing. More worrying were reports that these companies were more focused on protecting the bottom line, rather than investing in growth and new innovative strategies to combat the online models.

 

“We don’t know where the bottom is, but it’s not looking good,” Cakmak wrote.

 

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