The Amazon purchase of Whole Foods exemplifies a fight between retailers and brands, the billionaire investor said Wednesday.
Consumers are increasingly favoring retailers’ own products over outside brands, and the Amazon-Whole Foods deal only exemplifies that, Berkshire Hathaway CEO Warren Buffett told CNBC Wednesday.
“There’s always a huge struggle," the billionaire investor said in an interview from Smith & Wollensky steakhouse in Manhattan, where he hosts an annual charity lunch. "It’s been going on for decades and decades between brands and retailers. I mean, to some extent retailers are trying to increase their own brands, that’s why they have private labels."
“When you get particularly strong retailers — A Walmart, a Costco, and now an Amazon — and they keep getting strong, their position improves," Buffett added. "Packaged goods have had more trouble building follows through advertising in recent years."
Consumers’ shift away from brand-name products is creating a “sphere of despair,” Barclays said in a note this May. Retailers are "more willing to invest in 'store brands,'" because the stigma of "generic" goods has lifted.
In fact, they’ve opened up to generic items so much that a startup selling unadorned goods raised $50 million in venture capital funding.
Both Amazon and Whole Foods have been playing up their own in-house brands in recent years.
Amazon has a 90% stranglehold on the online battery market, according to UBS, and its AmazonBasics battery line accounts for a significant portion of that. The batteries are cheaper, and in the eyes of consumers, identical. That’s bad news for brands like Buffett-owned Duracell, which positions itself as a superior product.
Whole Foods’ previously announced a line of separate “365 stores,” that would only sell Whole Foods-branded products. However, the fate of these smaller-format stores is uncertain after the Amazon acquisition.
Nonetheless, the rise of store brands has "greatly diminished manufacturers’ pricing power," Barclays wrote. That has large consumer conglomerates like Berkshire-held Mondelez, as well as Nestle, Unilever, and Proctor & Gamble running scared.
“There will always be a fight,” Buffett said. “But right now the retailer is doing better in this round of the fight.”