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The Amazon Threat to Wholesale Food Distributors

By
Rianna Greenfield
on
Monday, May 13, 2019
Table of Contents

According to a recent survey by Exact, Macola division, 92% of wholesale distributors consider Amazon to be a competitor and a threat to their business. In fact, the concern over the impact of Amazon’s direct-to-consumer sales on the distribution industry is so strong that suppliers are seeking ways to cut down on their operational costs in a bid to stay profitable. Exact’s survey reports that 80% of distributors are adjusting product pricing, while 60% of warehouse and fulfillment services are being outsourced.

What Makes Amazon Such a Threat?

Amazon’s overall sales have increased by 31% from 2017 to 2018, reaching a staggering $233 billion. The fact that Amazon has the power to grow exponentially in one-year highlights just how much buyers depend on eCommerce, and the convenience and flexibility online ordering provides. Not only is the company responsible for changing the B2C buyers’ purchasing habits, but it is credited with heavily influencing the B2B industry’s shift into eCommerce.

Amazon Business, the company’s B2B eCommerce offering, has shaken up the distribution industry since 2012. Over the course of several years, Amazon Business has reached over one million customers across six countries and has over 9,000,000 product listings. The company is so popular, in fact, that 92% of B2B buyers admit to researching business purchases on Amazon, which has led to 82% of them transacting on the website.

Given the company’s presence in the eCommerce marketplace, and the distribution industry’s shift to mobile and online ordering, it is clear that Amazon has the potential to severely impact B2B wholesale distribution companies.

Amazon’s Foodservice Potential

Amazon entered the retail foodservice sector when it launched AmazonGo in 2016, and later expanded its footprint when it purchased Whole Foods in 2017. It comes as no surprise that reports are surfacing saying that the eCommerce giant may now dip its toes into the wholesale food distribution market. The company will likely leverage its acquisition of Whole Foods in its quest for wholesale dominance.

Amazon’s B2C reach is incredibly broad, and there is no reason to believe this will change if the company enters the foodservice distribution industry. Buyers want to place orders on platforms they are familiar and comfortable with, and the risk that they will switch to Amazon for their B2B purchasing is very real. Business analysts believe that Amazon will utilize their 460+ Whole Foods storefronts as mini-distribution centers, allowing them to quickly deliver perishable, specialty, and prepackaged goods to buyers across the country.

Even if this proves not to be true, small and medium-sized suppliers need to take Amazon’s size and power into consideration. The company is an eCommerce powerhouse and has one of the most advanced warehouse and fulfillment systems in the world. Amazon has more access to resources like personnel, storage, and delivery trucks than most wholesale distributors combined.

As you are well aware, the foodservice supply industry is currently led by three major companies: Sysco, US Foods, and Performance Food Group. If Amazon enters the market, it could very well be through an acquisition of one of these companies, which can spell disaster for small and medium-sized wholesale distribution companies.

If SMBs act fast enough, they can get ahead of the damaging effects of Amazon entering the wholesale foodservice distribution industry. Thankfully, B2B eCommerce for small and medium-sized businesses is well within reach. To find out how SMBs can use eCommerce solutions to compete with industry leaders, download our eBook,  Wholesale B2B eCommerce: for Small and Medium Sized Businesses.

Indirect eCommerce Channels

Small and medium-sized supply companies are at significant risk if Amazon enters the wholesale foodservice distribution industry. Many of these companies are already failing to meet their customers’ demand for eCommerce solutions and will experience an increase in customer churn if they don't take action.

In a survey of 244 manufacturers and distributors, 52% reported that they do not have a strategy in place to compete with Amazon. Even more alarming, 43% of distributors said they actually use Amazon as their company’s sole eCommerce solution. This will likely be a double-edged sword for many reasons:

  • No Customization: wholesale buyers want custom pricing, catalogs, and order guides. None of these are available through indirect eCommerce.
  • Outsourced Customer Service: distributors and their sales reps are no longer able to offer their buyers personalized, white-glove customer service. This leads to a less satisfying customer experience.
  • Loss of Control: suppliers do not “own” their product catalogs and collateral, meaning they do not have control of when information is updated.
  • Slower Revenue Growth: indirect eCommerce channels take a large commission, which means suppliers need to have much larger order volumes in order to grow revenue.

What many wholesale food distributors don’t realize is that there are a number of other effective B2B eCommerce options that don’t include indirect channels. To learn more about these options continue reading: How Wholesale Food Distributors Can Compete with Amazon.