Amazon and consumer product companies like Procter & Gamble and Clorox are discussing the possibility of advertising via the e-commerce giant's Echo devices and Alexa voice assistant, sources have told CNBC.
Consumer product companies are already under siege as private labels — including Amazon's own — are increasingly gaining traction among consumers.
The move could also bolster Amazon's already formidable advertising business, which is slated to enjoy an estimated 22% compound annual growth rate by 2022, according to Morgan Stanley analyst Brian Newark.
In an era when just about everything — apparel, household items, electronics and even furniture — has become commoditized, brands face new competition and price pressures. Store brands are popular these days, especially among younger shoppers like millennials, who came of age during the Great Recession and are less brand-loyal than their parents and grandparents. That's provided fertile ground for retailers with high-quality private label brands.
The number of heads of households shopping at dollar stores under 35 years-old that earn more than $100,000 a year increased 7.1% between 2012 and 2015, compared to 3.6% at all retail stores, according to Nielsen research. Some 29% of millennial dollar store consumers earn over $100,000 annually and accounted for about 25% of sales at those stores, much of it to no-name brands of common household items, according to market research firm NPD's Checkout Tracking.
Disruptors, not least Amazon, are entering the space and upending previous sales models and channels. AmazonBasics is crushing other retailer's private brands, and the Amazon Elements and Amazon Essentials lines aren't far behind, along with its acquisition of the Whole Foods 365 line. Through the Amazon Elements line, the e-commerce giant has several well-performing private label products, including baby wipes, where the "sensitive, 480 count" choice earned $2.5 million in sales last year. In fact, according to One Click Retail, Amazon Elements ranks third behind Huggies and Pampers in the baby wipes space. Many products are available only to Prime members, helping expand the value of Amazon's annual $99 membership.
That means that Amazon also has something to gain as the company continues to sell such name brands, especially if it can grow a profitable enterprise in advertising to balance the meager profits from its retail sales, where fulfillment and delivery expenses have taken their toll. The question is how much tolerance Alexa users will have for advertising, which, in the age of ad-free streaming services for entertainment and music, would return many consumers to the kinds of interruptions they've paid to escape.