Amazon’s War on Small Business
Amazon’s purchase of Whole Foods is bad news for entrepreneurs and small businesses in the grocery business.
PHOTO CREDIT: Getty Images
Amazon's recent purchase of Whole Foods has spawned much speculation about the company's ultimate intentions. Probably the most perceptive and comprehensive is a recent article in the Harvard Business Review. Here's the money shot:
"What Amazon will now study in the brick-and-mortar world - and more importantly, what it learns and how it applies the insights - can transform consumer retail in the United States. By buying Whole Foods, Amazon gets virtually limitless possibilities to test products and services, test price points and assortment interactions, redefine the price perception for organic and healthier foods, merge offline and online shopping experiences, and perhaps test home delivery or store pickup with ideal early adopters."
If that's true (and I think it is), the acquisition is very bad news for the grocery giants, which may end up going the way of Borders, the once-huge chain that Amazon's original business model ran out of business.
However, if Amazon is planning what the HBR is predicting, it's even worse news for small businesses in the food production industry, like local farms and specialty food manufacturers.
While Amazon positions itself as a platform for small businesses to reach a larger customer base, it creates an environment where small businesses are vulnerable to fraudulent competition that undercuts their prices. This not only reduces their revenue, it damages their brand reputation.
Here's an example from my own personal experience.
For example, I recently purchased a loofa back scrubber (yeah, I know, TMI, but bear with me) that was advertised as a Voda Reve branded product with an illustration showing a loofa area of about 32" by 4". The product I received, which came in packaging that looked official, had a loofa area of about 12" by 2".
When I gave the product a bad review ("Total BS -- tiny compared to product depicted."), it came up as a comment on the official Voda Reve product, spawning this response from the company:
"Our Amazon product listing clearly states that the dimensions of our back scrubber are 32" long x 4" wide. If you received a product that does not meet these dimensions, you could not have purchased an authentic Voda Reve back scrubber. Because your review does not indicate that this was a verified Amazon purchase, we must assume that you made your purchase from a source other than our Amazon listing. We are sorry that you received a product that did not meet your expectations. If you want to try our back scrubber, please make a purchase directly from our Amazon listing."
In fact, I DID purchase the product on Amazon but from a vendor that was pretending to sell Voda Reve products at a lower price than the official product line. After receiving the note from Voda Reve, I updated the review but the vendor page from which I bought the counterfeit product is still on Amazon, although it shows that the product is no longer available.
Just so you know Voda Reve is a classic small business. From its website:
"Voda Reve Spa Essentials is a subsidiary of Bixore, LLP. We are a family-owned business dedicated to providing the highest quality beauty and spa products that are designed for both men and women."
I have no doubt that Bixore and Voda Reve work very hard to maintain a positive brand image. However, because Amazon doesn't police the products it offers, they have to play whack-a-mole in order to maintain revenue and avoid brand image problems.
As Bloomberg Technology pointed out recently, this is an endemic problem for small companies that sell on Amazon:
"Amazon, EBay and Alibaba are largely shielded from legal liability as long as they have processes in place for brands to report fake goods and take timely action to suspend their sale once notified. The online marketplaces often don't have the inventory, so there is nothing to seize. The result is an endless loop with brands buying and reporting fakes, marketplaces suspending accounts, and the fraudsters creating new accounts to hawk the same fake goods under new pseudonyms."
Deciding not to sell on Amazon doesn't help the situation because you still have to play whack-a-mole to keep the counterfeiters from capturing online sales and ruining your brand.
Which brings us back to the grocery business.
Amazon's purchase of Whole Foods could easily damage or even decimate local farms and small food businesses by making a multitude of fake "local" products available at low prices.
For example, consumers might think they're buying organic milk branded as a product from a local farm but what they'd actually receive would be a counterfeit-branded bottle of hormone-packed milk from a barely sanitary South American prison farm.
Think that sounds unlikely? Well, consider that counterfeit eclipse glasses were widely available on Amazon, resulting in cases of what's probably permanent eye damage.
Unless Amazon intends to stand behind the products it sells--which would mean guaranteeing that local products actually come from local businesses--the company's entry into the grocery business will simple spread the current headaches to yet another industry.
Amazon will profit, of course, but small businesses (and consumers) not so much.
What can entrepreneurs and small businesses do? Easy. Support candidates for public office that want to enforce anti-monopoly laws as they were originally intended to be enforced--as a way to keep large companies from acquiring too much market power.