The answer is this: In the age of digital commerce where consumers can easily search for products and compare brands, retailers find that to drive traffic and make a sale, they have to compete on price. Lowering prices on branded products can often erode margins and eliminate profits. Products costing $3 or less are on display in the lab of the online retailer Brandless in San . Brandless has gained success by offering only private-label products to customers. Brandless reduces costs by working with manufacturers directly to make the goods.
(AP Photo/Eric Risberg) Private brands are one of the primary ways for a retailer to differentiate itself from its competitors. Retailers control virtually every aspect of the private label brands they create and introduce. From a strategy perspective, I strongly recommend my retail clients to accelerate focus on private label products for one key reason - private label brands are always cheaper than well-known branded products resulting in hire margins and profits for the retailer. Note: It's important for me to point out that retailers that introduce its own line of private-label products will more likely than not also sell branded products in the same category. Many customers are brand loyal so a private-label only strategy wouldn't be wise. What makes Amazon such a dangerous competitor to established brands in the motor oil category is the fact that Amazon can sell its private-label oil online at a much cheaper price. Amazon will continue to offer branded motor oil but over the coming months and years, I anticipate that Amazon will take significant market share in the motor oil and lubricants categories.
Another option Amazon can pursue is to introduce its private brand of motor oil in Sears Auto Centers. Amazon and Sears have a relationship whereby car tires can be ordered online from Amazon and installed at a Sears Auto Center. Expanding the relationship to include Amazon's private label oil for use in oil changes would be fairly easy to do. Amazon can also partner with any number of quick service oil change providers (Jiffy Lube, Kwik Car Lube, Valvoline Instant Oil Change, etc.) which is where most consumers go for an oil change. Pennzoil is a leading brand in such centers but I see nothing to prevent Amazon from being able to take market share from Pennzoil or any of the other brands sold in quick service oil change facilities. What is certain is this: Amazon is just getting started in the oil business and the company has significant growth opportunities across multiple categories. I can easily imagine Jeff Bezos giving this speech from the movie There Will Be Blood that I posted from YouTube. As Jeff Bezos has repeatedly said "Your margin is my opportunity." The automotive industry is ripe for Amazon to disrupt. I have been on the record since 2013 that I believe Amazon will enter the automotive industry with a focus on two key areas: I have also been on the record that Amazon may acquire Sears to gain access to Sears Home Services and Sears Auto Centers. Sears retains ownership of several leading brands that would also prove valuable to Amazon. Note: Amazon could acquire Sears, the entire company and all brands, for less than $800 million. Amazon has the potential to acquire a retailer such as AutoZone or O'Reilly Auto Parts. However, an even bigger acquisition Amazon could make would be to acquire the Genuine Parts Company (GPC) owner of the most widely known automotive parts store globally, NAPA. Making an acquisition isn't mandatory for Amazon as it can form the required partnerships to enter the automotive replacement parts business and expand its private-label brands to include auto parts. The Tesla factory located in Fremont, California, is the principal production facility of Tesla . It is plausible that Amazon could acquire Tesla or make a strategic investment in the company. The automotive industry is ripe for disruption by Amazon. Tesla and Amazon collaborating on new products and ideas could prove lucrative for both companies and customers. (Photo: Tesla) As with other categories Amazon enters, what Amazon looks for is scale. In other words, how big is a category and how much bigger can the category become? In regards to the automotive industry, it is a multi-billion dollar industry, especially in terms of the revenue generated from replacement auto parts, tires and maintenance. However, by creating and introducing private-label products, Amazon can take market share from industry leaders plus grow the categories. I remain convinced that most analysts and consumers don't realize that Amazon's growth and annual revenue are limitless due to the number of new categories Amazon can enter and disrupt.
Amazon controls less than 6% of all retail sales globally. What prevents Amazon from eventually controlling 20% or even 40% or more of all retail globally?
As with Amazon's strategy for all of its private label products, Amazon will identify where it can introduce private label products across product lines within the automotive industry. Motor oil is a category few if any oil company executives or automotive company executives ever believed Amazon would compete yet the reality is clear - Amazon is in the oil/automotive business. For the record, I have written and spoken publicly that Amazon should acquire Tesla or invest in Tesla. I can only imagine the ideas that Jeff Bezos and Elon Musk would generate and introduce if they worked together.