Amazon will need more than $ 1 billion to win over merchants as anger builds on private brands – Technology News, Firstpost

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Ashish Grover, who runs a wholesale drug, health supplement and surgical equipment company in the former Bhagirath Palace in New Delhi, is a concerned man.

"Just look at the prices they offer," he said, referring to health supplements sold under Amazon's private label Solimo. A bottle of Solimo Omega 3, for example, is available for Rs 499. Competitive brands are at least 10% more expensive.

"We can't compete at that price, even with discounts," said Grover, whose profit margins averaged just 10%. His business has dropped by 20-25% in the past two years and he blames e-commerce platforms for it.

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They are not just supplements. Amazon and rival Flipkart have a number of private brands that compete with independent sellers on their e-commerce platforms. From clothing to cosmetics, food to furniture, Amazon and Flipkart have a wide brand presence with hundreds of products.

Own brands, in this case, are brands created and sold by online markets to compete with brands listed by merchants on their platforms.

Private labels are generally cheaper than well-known brands, but they operate in a gray area: is it ethical to collect data from those that online markets claim to serve and launch competing products or services? In addition, regulations expressly prohibit private labels in electronic commerce.

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Amazon shipping.

Flipkart and Amazon get about 10 to 15% of their sales from private labels, sold by third parties, sources close to the two companies said. The number is expected to grow to 25 to 30% in the next three to four years.

The concerns of merchants like Grover contrast with grandiose ads from e-commerce giants, who claim to be committed to the well-being of those who sell in their markets.

On January 15, Jeff Bezos, founder and CEO of Amazon, announced an investment of $ 1 billion to digitize small and medium-sized enterprises (SMEs) in India. He stepped up the charm offensive by reducing the global sales outlook for Make in India products to $ 10 billion by 2025.

But not everyone is delighted. Many traders see private labels as an existential threat.

Even in the United States, Amazon is being criticized by merchants and is facing scrutiny, in particular from Senator Elizabeth Warren, who is seeking the Democratic Party's nomination for this year's presidential election. "You can be a referee or a player, but you can't be both," she said during a city hall in 2019.

Private brands are not limited to Flipkart or Amazon. Food delivery platforms, such as Zomato and Swiggy, have also created kitchens in the cloud, either on their own or through partnerships, and have created brands that compete with the restaurants listed on their websites.

Zomato has more than 180 affiliated cuisines and Swiggy's private brands include The Bowl Company, Homely and Breakfast Express.

Private brands also allow markets, which are largely deficient in India, to achieve higher margins, even at a lower selling price.

So what's the problem?

In the home, kitchen and electronics spaces, Amazon has brands like Solimo and AmazonBasics and Flipkart has Smartbuy; in fashion, Amazon owns Myx and Symbol, and Flipkart offers Amni, Divastri and Metronaut; and for Amazon devices it has Symbol and Flipkart has MarQ.

"When you search for a product, they (the platforms) show off their products, which are cheaper than those offered by competing sellers," said Praveen Khandelwal, Secretary General of the Confederation of All Traders in India (CAIT), a lobby group representing millions of online and offline home sellers.

The association asked the competition authority of the Indian Competition Commission (CCI) to examine private labels, which are illegal and unfair, he said. "There is cannibalization and cartelization going on on the platforms," ​​said Khandelwal.

A CCI source said that a large number of vendors and restaurants expressed concern about "platform neutrality", especially in two areas: private labels and preferred vendors, who enjoy preferential treatment.

The problem also exists in the food delivery segment. According to a CCI survey, “the dual role played by platforms that own and list their kitchen brands in the cloud exclusively on the platform, similar to their own brands, created an inherent conflict of interest between the platform's role as an intermediary on the one hand. and as a market participant on the platform, on the other. "

As a result, e-commerce and food delivery platforms are markets and competitors to sellers. As the market is controlled by platforms, there is a growing concern that private labels and preferred suppliers are receiving preferential treatment. "This is a disadvantage for other vendors on the platform," said Khandelwal.

Amazon doesn't agree. Gopal Pillai, vice president of seller services at Amazon India, said in the US, where many private brands are born, accounting for 42% of sales. “58% still comes from third-party sales. Whether it is a product of its own brand or of origin, what matters is quality, ”said Pillai.

Government regulations on foreign e-commerce investments say companies like Amazon and Flipkart can only operate as markets that facilitate online transactions between buyers and sellers.

Foreign direct investment (FDI) is allowed only in markets and not online inventory-led businesses. The law also says that markets can provide storage, logistics, customer service and support, but they cannot exercise control over inventory or sell their own products on the platform. Swiggy and Zomato are also markets.

"It is ethically incorrect for companies that started out as platforms to compete with the players themselves," said Anurag Katriar, director of deGustibus and president of the National Restaurant Association of India.

Swiggy.

A questionnaire sent to Zomato got no response.

But the platforms worked out a way to get around the law. They license the brands to a seller or sellers who list their products in the markets.

Executives from the Department of Promotion of Industry and Internal Trade (DPIIT) did not respond to several calls made by Tech2.

A former DPIIT employee, however, said it would take time to resolve the private label problem. "Markets have found ways to get around the law and do business," said the person who did not wish to be identified.

The data is reproduced

Online markets have a huge data advantage. They collect competitively relevant data, including prices, volumes, demand, salesperson performance and how geographic regions behave. This allows markets to understand which product will sell well. They launch their own brands in these categories, increasing their sales or those of preferred sellers.

Typically, private labels are introduced in the most sold categories. A senior data scientist with experience working with markets explained on condition of anonymity how this is done.

The first data sets that a platform analyzes are volumes in a product category, sales rates by distributors and margins. "Clothes have very high margins of around 30 to 40% and more than 30% of clothing sales are from private labels," said the data scientist.

Electronics, on the other hand, only have a margin of 5 to 7%, but with their own brands, they can double.

The other factors considered are the power of the main independent brands in the category, specifications that consumers like and regions where a given product will work. Platforms have all this data.

But traders or restaurants that list in the markets are practically in the dark. A restaurant owner who lists Swiggy, for example, doesn't even know who the buyer is. All they receive at the end of the month is a summary report, while the rich data remains on the market. The data that merchants and restaurants generate may end up working against them.

Non-biased platforms?

With the launch of private labels, the phone accessories business had a 20% impact, said All India Mobile Retailers Association president Arvinder Khurana. In addition, the platforms charge a heavy commission – 18% to 20% – on the sale of the product. "For private labels, the commission is lower and their brands appear at the top of the search list," he added.

But, Amazon doesn't agree. "We are 100% impartial," said Gopal Pillai. "The success (of the salespeople) would not have come if you were not offering equal conditions and equal opportunities … We want to be the catalyst for our small and medium-sized companies to be successful".

Flipkart said it was leveraging home technology and innovation to drive economic prosperity in India, helping thousands of vendors, MSMEs and artisans to connect with more than 200 million customers through an "efficient and efficient market and distribution system. economic".

"These salespeople decide the prices of their products independently on our platform and we also provide them with relevant data information that helps them meet consumer demand and requirements," said a spokesman.

Flipkart. Image: Reuters

Flipkart. Image: Reuters

For food delivery platforms, launching kitchen brands in the cloud in high-demand categories in hyper-local markets is done through cross-use of data.

"In the merchandise category, the platforms' own brands are supposed to be displayed as best sellers to customers, while in the food service segment, the cloud kitchens on the platforms themselves receive prominent positioning," found the CCI survey.

Swiggy denied pushing his own brands. “Swiggy's private brands do not receive preferential treatment compared to the rest of the partners and receive standard commissions to operate on the platform. These brands receive actionable insights that are made available to other partners and bear marketing costs for all promotions. on the platform, ”said the spokesman in an email.

Thomas Fenn, founder of Mahabelly, a restaurant that displays Kerala food in Delhi's Saket, wondered how Zomato and Swiggy guaranteed footprints and online orders for restaurants if they didn't understand consumer behavior. "They have such deep insights and visibility into home deliveries that they are able to shape customer behavior," he said.

At the end of the month, restaurants receive some top-level trend analysis. "They are collecting data about consumers … What is the guarantee that they will not use them to eventually drive traffic to their private label offerings and cloud kitchens?" Said Riyaaz Amlani, CEO of Impresario Entertainment and Hospitality, which runs restaurants like Social and Smoke House Deli.

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