Amazon continues to prove that no industry is safe. Amazon has released its private-label motor oil and industry analysts have begun to downgrade oil stocks. (AP Photo/Mark Lennihan)
Introduction
Amazon is now in the oil business. With the release of its Amazon Basics Synthetic Motor Oil, Amazon has effectively entered into an industry ripe for disruption.
A report from Market Watch announced that shares of Valvoline Inc., sank 4.2% in premarket trading on Friday, September 14, after J.P. Morgan turned bearish on the engine maintenance products company, citing concerns over competition from Amazon.com Inc.
I anticipate that other press releases will become commonplace in the coming months as news about Amazon's latest product and category entry gains publicity. Retail and business analysts always regard Amazon's entry into a category as having a detrimental effect on established brands.
Amazon Basics Synthetic Motor Oil is the retailers' private label oil and a competitor to Valvoline, Quaker State and other leading brands. (Photo: Amazon)Amazon.Com
Although first available in July 2018, reviews of Amazon Basics Full Synthetic Motor Oil have just started to appear with most customers giving the product a positive review. Retail analysts tell me that they find it fascinating how Amazon will release one of its private label products with no fanfare or announcement.
The fact that Amazon has a released a private label product in a category most analysts and consumers believed Amazon wouldn't compete, will become a big story.
Full disclosure: I used the Amazon Basics brand for my latest oil change and so far I have seen no difference in performance, horse power or mileage when compared with the more expensive motor oils I regularly use. Like many car owners, I prefer to keep a vehicle for a long period of time. My current SUV has over 100,000 miles on the engine.
Private Label Is Strategic To Amazon
Private label is becoming extremely strategic to Amazon. As of July 2018, Amazon has a total of 76 private label brands but I estimate Amazon will have over 2,000 private-label brands within 3 to 5 years. Reviews of the brands are exceptionally positive.
Note: I have spoken publicly and written in many articles that I believe Amazon will become one of the largest Consumer Packaged Goods (CPG) companies in the world due to its private-label strategy. Amazon is the hub of online demand generation. Add in the fact Amazon owns nearly 500 Whole Foods stores with more to be built in the coming years, and what's clear is that Amazon has tremendous potential for influencing consumers to buy its private-label products.
According to Jeff Bezos. "Amazon's market size is effectively unlimited."
A question I am often asked is why does Amazon want to sell its own private label products? 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.
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.
Automotive Is A Big Category
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:
- Replacement Parts
- Maintenance
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 $800M.
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.
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? Answer: Nothing.
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. Bezos would provide mentoring and adult supervision that I believe Musk desperately needs.
I believe Amazon and Tesla offers incredibly exciting possibilities. By acquiring an automotive parts retailer or expanding into automotive replacement parts, Amazon has the potential to become one of the largest car companies and auto parts retailers in the world.
No Industry Is Safe
Amazon's entry into motor oil proves once again that there isn't an industry Amazon can't enter. I'm amazed at how many executives across different industries tell me that they're not concerned about Amazon for one reason or another.
Gregory Henslee, CEO of O'Reilly Auto Parts, expressed sentiment shared by many executives in the automotive industry - Amazon can't compete in the business. According to Henslee:
"I realize that Amazon is the strongest and the best run, and I obviously have a lot of respect for them and I am a customer for household items and other things," Henslee said. "But ... some of the things that are a barrier to entry for these guys are that we're in a very technical business."
Note to all CEOs: None of you are in a business that is too technical for Amazon.
I'm amazed at how many companies believe they can continue to operate alone. I believe such a strategy is foolish.
Since Amazon acquired Whole Foods in 2017, there has been little additional consolidation in the grocery industry even though the threat of Amazon becoming the largest grocery retailer between 2030 and 2035 is a real possibility. I strongly advise Walmart and Home Depot to consider merging. Kroger and Target should merge. Albertsons should try and sell itself to Alibaba. See where I'm going with this?
Amazon is truly the unstoppable force. Big thinking and Big moves are now a must have for all companies.
Why is Amazon so successful? Because far too many CEOs continue to run their companies as if Amazon doesn't exist. The CEOs of Kroger, Walmart or Albertsons should have realized how strategic Whole Foods was to Amazon and acquired the company. Instead, the CEOs that assumed Amazon would never acquire a grocery retailer are now struggling to prevent Amazon from taking market share.
When it comes to Amazon, crush all assumptions. If you think Amazon can't or won't do something, banish the thought. Well-run companies with qualified and competent executives will insist that every effort be made to identify how and when Amazon can impact its business. These same CEOs will insist and embrace big thinking and big moves.
To paraphrase Jeff Bezos "Your inability as CEOs to consider the fact I can enter your industry makes it easy for me to take your market share. Your unwillingness to seek out M&A opportunities reduces barriers. Think I won't acquire Target so I can open Whole Foods Markets inside Target stores? Think again. Think I won't acquire Costco? Think again. If I can conceive it, Amazon can achieve it."