Amazon CPG Digest - 10.19.2024

October for us means it’s almost Dia de Los Muertos (Day of the Dead). Not to be confused with Halloween. Or movie Coco.

We live in the truly the best place in Mexico to witness Day of the Dead, city of Oaxaca. And while you are probably enjoying everything pumpkin, getting cozy warm clothes out, we are surrounded by beautiful orange cempasúchil, marigold, flowers, artfully made skulls (calaveras), and high amount of tourists looking for oat milk in Starbucks.

With that awkward no transition, let’s look at what’s been happening in Amazon marketplace that CPG brands should care about.

 Prime Big Deal Days 2024 Overview

Amazon's Prime Big Deal Days, held on October 8 and 9th, saw sales growth of up to 42% year-over-year for some sellers.

Globally, Prime members saved over $1 billion, marking the event as Amazon's biggest October sale yet​.

My take on sellers’ experience of October Prime Big Deal Days   

Mixed.  

• Positive outcomes:

  • 3P (Seller Central) sellers saw record sales compared to last year's October event. Some sellers reporting 40% more sales YoY

  • Popular product categories like beauty, home essentials, and electronics performed well ​
    .

• Challenges:

  • Suppressions by Amazon of for Prime Exclusive Discounts, mostly due to ‘lower reference price’ (aka Amazon stating your product is sold for less somewhere else online). The new $50 fee for Prime Exclusive Discounts was what I call Amazon penny pinching

  • Economic uncertainty and competitive pricing added pressure on margins​ for many brands

I still can’t get very excited about October Prime Day, and recommend it to my clients on a very specific case by case basis (example, moving excess inventory). Being only weeks away from the holiday promotional period makes it tougher on margins to do heavy promotions on the October Prime Day. 

Summary of Amazon FBA Inventory Fees for Q4

During the holiday season, Amazon applies two key fees that FBA sellers need to plan for: Peak Fulfillment Fees and Higher Storage Fees.

Amazon Peak Fulfillment Fee: This fee is an additional charge applied to the fulfillment costs for sellers using Fulfillment by Amazon (FBA) during the peak holiday season, typically from mid-October through the end of December.

Amazon Q4 Storage Fee: This is an elevated storage fee that applies to inventory stored in Amazon’s warehouses during the fourth quarter (also October-December).

1. Peak Fulfillment Fees (October 15, 2024, to January 14, 2025):

   • On average a 5-10% increase over regular fulfillment fees
     ​
     .

2. Higher Storage Fees (October through December):

   • This is on average 3X higher than non-holiday storage fees 

Impact of Q4 FBA fees on your Amazon margins, and strategies for planning and budgeting  

• If your average net profit margin is around 10%, these holiday Amazon fulfillment fees can reduce it by 1-2 percentage points, depending on your product’s size and weight.

 For example, if your product typically has a $5 profit per unit, an additional $0.50 to $1.00 in fees could reduce that to $4, translating into a 10-20% decrease in net profit per unit on Amazon​

Q4 triple storage fees have minimal impact if your FBA inventory is sold through within the holiday season itself. However, low-margin products run risk of being unprofitable if left unsold​. 

Recommendations

1. Forecast holiday inventory using historical data (your prior Amazon years).
   

   In absence of that, higher margin and faster moving products will deliver better margins on FBA than slower moving and/or low margin products. 

2. Be brutal with excess inventory - Q4 is one of the best times to sell through slower moving, excess, approaching expiration date FBA inventory. Coupons, Brand Tailored Promotions are more margin friendly ways to move old inventory than PPC advertising

3. Leverage dynamic pricing -  even budget conscious customers are more prone to spend more during holiday season, especially on loved ones. Incorporating modest price increase, or use dynamic pricing tools (I recommend Profasee)

4. Capture higher FBA holidays in your 2025 cash flow projections. You can use your historical FBA transactional data to get more accurate numbers for your cash flow and P&L planning

Struggling with Amazon margins? We specialize in profit optimization for CPG brands. Reach out for an intro conversation.

New rules for bundles in consumable categories

In the last 10+ years many individual resellers built multi-million dollar FBA businesses by bundling known brands products and selling them on Amazon. This allowed complete avoidance of building an actual IP protected brand, marketing, and long term inventory. 

As you can see in these couple examples in beauty and grocery, all offered products are known brands, and sold by unknown generic reseller, with a UPC code that they probably recycled on Ebay. 

It was really a great cash flow reseller model. 

Until now. 

Per Amazon:

Impact to CPG brand owners

 Pros

Brand control: Only authorized bundles from the brand owner, or authorized reseller, will be allowed to sell on Amazon. This ensures brand control, cleaner brand Amazon catalog, brand consistency and quality. 

Protection against counterfeits: Reduces risk of low-quality or counterfeit products in bundles, enhancing customer trust.  Counterfeit point is more relevant for non F&B CPG categories, like beauty.  Expired, crushed, or broken product sold in one of these homemade bundles is more relevant for F&B

Better customer experience: Curated bundles from the brand can lead to higher satisfaction and repeat purchases. In short, you will care more about customer interaction with your brand and product, than a reseller.

The bigger the brand, the more benefit from this change: Established brands with strong brand equity capital have more to lose from these reseller bundles.

Potential risks

Loss of sales for small brands: Smaller brands relying on third-party sellers for bundles may see decreased visibility and sales. These resellers buy branded products through distributors and wholesale channels.

Higher costs and operational burden: Managing and promoting bundles in-house increases operational complexity. To replace reseller bundles with your own does require operational configuration and resources

One less intro to brand opportunity: Reseller bundles can introduce your brand to a new customer, and lead to further purchases directly from your brand.

Less free market research: Resellers get really creative with bundles, and are quick to test and kill what doesn’t sell. Watching these bundles on Amazon is a great way to do research for your own branded bundle creation. Removing these resellers bundles eliminates this research route  

All in all, Amazon cracking down on IP and brand ownership IS best for brands, customers, and marketplace integrity in the long term.  In 2023 Amazon removed over 7 million fake goods from the marketplace. Fake reviews, counterfeit have somewhat eroded Amazon’ trust with consumers. Reigning in homegrown resellers does create a better marketplace for brands that work so hard on building awareness and trust with customers. 

Saludos,

Irina

We help brands with strategy, channel management, revenue and profitability optimization, and operational buildout of the Amazon channel. Schedule an intro conversation here, or simply reply to this email with your Amazon challenges