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WARREN BUFFETT: A 'huge struggle' is taking place between brands and retailers

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.

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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.

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“There will always be a fight,” Buffett said. “But right now the retailer is doing better in this round of the fight.”

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