Podcast transcript
James Dihardjo
Chris, thanks so much for making time to chat, man. I just want to handball straight to you using a bit of Australian language there and ask who you are and what it is your agency does.
Chris Moe
Sure, sure. great to be here. Really excited to chat. So, I'm Chris. I'm the co-founder and president of Cartograph. We're an Amazon-focused agency based in Austin, Texas. We focus on CPG mostly better for your foods. We, primarily do food and beverage, but also do baby, pet, skincare, personal care products, supplements, and other kinds of similar products. Basically what we say is our clients, would fit in the Whole Foods.
And so we really work with two groups of clients, I would say, or two types of brands. So one is, a brick and mortar first, like a retail first type brand. So those are things, you know, I'm, I'm going to go name a bunch of US based brands, but maybe, some of them. Justin's Nut Butters, Lily's Chocolates Pop Chips, Birch Benders Pancakes, those kind of stuff that like grew up in a shelf in the store and they have to figure out how they work on Amazon. So often the challenges with them are, how do you get a multi-pack that actually makes the economics work on Amazon? how do you make sure that you're profitable, whether it be 1P or 3P? And then how do you avoid arbitrage opportunities particularly if you're selling via distributors where 3Ps can sell, can buy or club channels like Costco where people can buy and do arbitrage opportunities.
And then the other side of the business that we do is we work with a lot of DTC brands or digital native brands both in food and that other categories as well. Brands like Magic Spoon Cereal and Four Sigmatic, and we help them figure out how to approach Amazon, how to be really aggressive. Because these are brands who are really good at what they do and, Amazon is often a really important second act for them in figuring out, how they continue to grow their brand.
James Dihardjo
Yeah. Interesting. I must admit that you're the first person I've interviewed in this category, Chris. So, I just want to hit you straight up with, tell us more about the category, right? The food space on Amazon. What's the latest happenings? What changes are you seeing? I know you released a white paper, but yeah. Maybe just share a, share a headline.
Chris Moe
Sure, sure. So, yeah, food and beverage as a category on Amazon. It's definitely a growth area on Amazon. From a very strategic high level Amazon's gap to Walmart, gross merchandise value is primarily groceries. So, it's been a major focus for the last number of years. And you can tell that investment in fresh buying Whole Foods, really expanding same day grocery delivery services. And so, it's been a big focus area. I mean, we work primarily in .com. We have a growing number of clients on Fresh and we support Whole Foods and do Advertising on Whole Foods as well. But we focus primarily on .com. Have built quite a few multi dollar businesses on .com.
I'd say the things that are most challenging about food, probably come down to pricing and profitability. So, food is probably the category where consumers are most familiar with how things cost and most price sensitive. One thing I always share with people is like, have you ever known a beverage brand that has a beverage consistently over $5? No. It's always a race to get it down in dollar costs. And so Amazon becomes like a very challenging thing to keep costs down. And then, you know, it's competitive because people in food, compete with price a lot. So you have to really figure out, how you can tell your story of differentiation and how you can make sure that you're still able to be profitable.
Which brings me to the white paper you mentioned. Most of our clients, a lot of the emerging brands are on Amazon's FBA channel. And so, as you probably know, Amazon's FBA fees are dictated by the greater of gross weight of the unit and dimensional weight of the product, which is length x width x height ÷139. Now, the magic of Amazon has always been that with a 15% referral fee and three to four bucks, you could ship your product anywhere in the US for in a day or two shipping.
This was in part possible because Amazon actually had a dimensional weight exemption for products that were under 12 ounces gross weight. This was super important. If you sold any product with a lot of air in it. Salty snacks, cookies, chips, anything like that just like had a kind of a big cube. And you know, there's other categories outside of Amazon or outside of food as well you can imagine. And so if you were under that 12 ounce gross weight limit, you were exempted from dimensional weight.
Just about three or four weeks ago, Amazon got rid of that dimensional weight exemption. And so what it did was it made Amazon really difficult for a lot of these types of brands because they went from an FBA fee that I believe was about $3 and 64 cents once it had the inflation adjustment, that jumped in a lot of cases to between 5 and 6 bucks or even higher. Just because these were a box this big that weighed 10 ounces because it didn't have all that much in it. Or in a lot of cases we were actually working with poly bags, rather than corrugate to really keep the cost down.
And so, the other dynamic that's tricky with food is price matching, especially if you are a brand distributed on other retailers. You will often be price matched for the same product to Walmart.com or Target.com or one of Kroger.com properties. And so it created this pressure on both ends where all of a sudden your logistics costs were going up, and then your ability to raise price to get profitable on the channel was really limited. And so it's been one of the biggest challenges on Amazon. We've been doing a lot of work to figure out with our brands how they, and how they can get around.
James Dihardjo
Yeah. Very interesting, Chris. You're clearly a wealth of knowledge. But I just want to kind of take your comments about the economics of products and costs going up and whatever. And let's just talk about the Ad spend strategy that I know a little bit about. But maybe you want to elaborate on what you're thinking is there and how you approach it?
Chris Moe
Sure, sure. So we take a what we call a portfolio approach to the full funnel of advertisements on Amazon. Portfolio approach, kind of pulling from like investment philosophy in like money management or asset management. Where, what we try to do is saturate all the different parts of inventory and all the different parts of the funnel and then react to the efficiencies that you get at each level.
Naturally you'll set slightly different thresholds or performance benchmarks for each sub-segment. So between your branded Ads, your category Ads, your sponsored brand branded, your sponsor brand unbranded, your category competitor, all that kind of stuff, all the way through to the different formats and even display. But really what you're trying to do is let every one of the formats go out and go out into the wild and see how well they perform, and then flow the money to the places that spend more efficiently.
What we've found, so we, we play in a very narrow set of categories, relatively speaking, right? and what we've found is even within those narrow set of categories, which formats work can vary pretty dramatically. And so what works for every brand really is something you need to test and learn. I think you talked to people three or four years ago and they say top of search, organic rank, get your free traffic.
You know, the kind of story we're all familiar with, and I just don't think that's the true story anymore for a number of different reasons.
One is the share of conversions from. So one top of search can get really expensive nowadays and Amazon has actually started to share exactly how much you get from top of search. When you look at brand analytics and you see even the percent of conversions that you get, from a major brand term. And unless you're in the top like 3-5,000 terms, it's really not that big of a number. So the value of playing for that is not as big.
The volume of non-search conversions has gone up pretty dramatically over the last few years. Like north of the third, I think, probably close to a half, or non-search conversions. And so, you know, the name of the game is, I mean, really Amazon is pretty simple. All every category is a stack rank of unit velocities. So, so every bestseller rank is a subsection of total search sales rank within a category.
It's a stack rank of daily unit velocities adjusted hourly. And so, you are trying to buy your way up that as fast as quickly as humanly possible. So, Amazon will give you you traffic as a reward. But the thing is that traffic as a reward isn't just search placements anymore. It's actually not listed on search placements and my personalized recommendations, stuff you see on detail pages, stuff you see when you add the card or you're checking out all kinds of different places.
So everything that we do on Ads is like with has to condense down to this mindset is go to the places where you can get the unit velocity as cheaply as humanly possible to spread it out between the portfolios and then just find the cheapest places that you can add more unit velocity so you can win that traffic. And of course, a lot goes into that. You got to optimize your content and your creative, and you should continuously be any places that you can adjust your advertising formats I think is really important.
One of the things I always tell our team is the best Ad optimization you can do to the Amazon Ad console is changing your hero image. And you usually like even a very small tweak on that will be far better than anyone's bid adjustments could do. So, yeah, that's long way of saying our approach and philosophy on, how we spend on Ads.
James Dihardjo
Oh, that's good. That's very interesting. Especially the point about the non-search conversion, that's really, really interesting, man. cool. So it's a final thing for you, Chris, before I leave you to your afternoon. So, you talked about specializing in taking brands to Amazon as you know, second act and that kind of thing. So I know from experience in Australia, brands always think about cannibalization as a problem and you know, all that kind of stuff. What's the thinking now? Or because you are out there kind of selling the Amazon concept to brands as the second act, right? So is there kind of a behavior changing, the thinking changing? What's your take on this?
Chris Moe
Yeah, I think the mindsets and knowledge about the topic have changed a lot in the last few years. A few years ago, we had to pitch why Amazon, and you know, justify that to be big enough and we don't usually have those conversations anymore. We've, we've taken a good number of DTC brands, to Amazon and measured a lot of things. And the results are kind of are actually kind of surprised.
So first off, when we've been able to check address lists against DTC and Amazon, the changeover is low single digit percentage, it's usually about 3% which is extremely low. You know, kind of hits the nail on the head. Like the idea of cannibalization that you're going to lose a bunch of your customers is not that big. And our conclusion on this has been the Amazon shopper is actually a pretty different pool than the DTC shopper. When you imagine like the Venn diagram of the two buckets, there's really not that much overlap. And it actually plays out when you look at demographics too.
DTC shopper is young, likes to engage with brands, probably finds them on a Facebook Advertising platform or TikTok or Snap or wherever. Brands are advertising, may not even like Amazon for ethical reasons, is very comfortable with the digital experience, like filling in credit cards and addresses and stuff like that versus you look at Amazon data, it tends to be older, millennial, gen X, and the people who were told to never put your credit card on the internet and they learned, okay, there's this one place that I can trust. They might run a household, they might have like a complex workflow, how they buy things and Amazon is like a reliable they can. So that's, that's kind like the major demographic differences between the two.
The other thing that we always talk to brands about is that, Amazon is a really important additional part of the customer journey for social proof and for content and for reviews and so forth. And so anytime that a consumer is interacting with your brand, whether it online store or they're on their phone pulling up Amazon to see what's the deal? What are people saying about this brand?
The more interesting this is as a baseline, we've found that, you'll typically get about 0.25 return on your digital spend outside of Amazon, in Amazon sales. And so we've seen this play out a number of times. And so usually founders are like, whoa, you're telling me I'm not getting a 2.5? I'm actually getting a 2.75 on my Facebook spend? Is actually a, a reasonable deal mover. So that's always, I think, an interesting one that changes the conversation a bit. The last one that I'll share with you. Is that we benchmark that Amazon should really be between, 10 and 40% of your total brand sales for a DTC brand. 10% is kind of like a floor if, you know, if you're running an Amazon properly should be able to do that and 40% if you're really able to like dominate a category or win some major, best seller type stuff, with your products.
I think brands are, are more and more taking Amazon seriously. If they're a DTC brand, gone are the days where, VCs would say, just do your own thing, own the data and stuff. Like, I don't think anyone's saying that anymore actually. And it's getting more competitive and it's getting a little bit more expensive but we're actually seeing a lot of dollar flows to Amazon just because in light of a lot of the iOS changes. It's becoming a relatively low cost acquisition channel.
James Dihardjo
Yeah, look, that's some fantastic, commentary there, Chris. Thank you and look, I think I've picked your brain enough for today. So again, thanks for making time to chat. And you know, I think I'd, I'd love to get you back to talk about that, non-search conversion stuff. We could do a whole thing on that, but again, thank you and I appreciate it.
Chris Moe
Absolutely happy to talk about it, it was fun.
