Amazon is a catalyst, not a middleman, in a direct to consumer world

This May, Amazon is holding a summit for consumer packaged goods (CPG) companies, according to Bloomberg. The goal is to convince CPG brands to rethink everything from manufacturing to packaging for the ecommerce-driven world we live in. Producing products that will end up on a shelf is very different than creating products that will end up on a customer's doorstep.

This all sounds very logical, except when you get to the phrasing of Amazon's pitch, which speaks volumes about how Amazon sees itself today.

From the article:

Amazon.com Inc. has invited some of the world's biggest brands to its Seattle headquarters in an audacious bid to persuade them that it's time to start shipping products directly to online shoppers and bypass chains like Wal-Mart, Target and Costco.... "Times are changing," Amazon says in an invitation obtained by Bloomberg. "Amazon strongly believes that supply chains designed to serve the direct-to-consumer business have the power to bring improved customer experiences and global efficiency. To achieve this requires a major shift in thinking."

Conventional wisdom would consider Amazon yet another chain retailer, like Walmart, Target and Costco. Yet Amazon's CPG initiative is designed in opposition to Amazon's (one-time) competitors. If Amazon is a retailer, then the direct-to-consumer positioning of this offering would seem to cut Amazon out of the value chain as well. If brands are working more directly with customers, how would Amazon or Target or Costco fit into the picture?

But Amazon's CPG ambitions are further proof that the company is playing an entirely different game. Amazon is no longer a retailer but a storefront with millions of eyeballs and a logistics ecosystem for brands of all types—including Amazon itself—to funnel product through. Put differently, Amazon is increasingly a commerce infrastructure company, not a retailer. Walmart, Costco, Target and many others are only traditional retailers.

From the article:

Manufacturers would have to re-imagine everything from the way products are made to how they're packaged. Laundry detergent could come in sturdier, leak-proof containers. Instead of flimsy packages designed to pop on store shelves, cookies, crackers and cereal could be packed in durable, unadorned boxes. Plants could spit out products for individuals rather than trucks-full of inventory. It's unclear who would handle the shipping, though Amazon offers a range of fulfillment services.

Let me take a quick guess at who will handle the shipping: Amazon. This is the entire point of this initiative.

Since going direct-to-consumer means cutting out middlemen who buy products wholesale, such as Walmart and Target, Amazon imagines a world where it's actually the enabler (and beneficiary) of this trend. Amazon continues to move to a marketplace model that skims a tax off of all of the commerce that flows through its infrastructure, which is further and further away from a traditional retailer. In a world that is increasingly direct-to-consumer, Amazon is much more powerful than its traditional rivals.

Walmart and its ilk, conversely, are trying to retrofit their stores with initiatives like buy-online, pickup in store. Marc Lore, the founder of Jet.com who now leads Walmart's ecommerce efforts, recently spoke about the pricing power Walmart has by buying truckloads of product and how it can leverage these efficiencies to offer lower prices. But Amazon's approach renders this supposed advantage obsolete over the long term, since Walmart's distribution mechanism is built for putting products on shelves, not at customers' doorsteps. The supply chain to realize a store-focused offering versus a consumer-focused offering is vastly different and requires years of buildout and evolution. (More on this)

Over the long term, brands who focus on the customer experience will beat brands who focus on price. Amazon is playing a different game than its so-called competitors, and the winds are blowing in its favor. While traditional retailers have a lot to lose as we shift away from a wholesale world to a direct-to-consumer world, Amazon has everything to gain.