What Happens When an FBA Aggregator Buys Your Competitor?
February 18, 2022
With the pandemic forcing more and more consumers to shop from the safety of their homes, the online shopping industry has grown in leaps and bounds.
While this uptick in traffic and sales is fantastic news for FBA sellers, it has opened the door to a new breed of competitor, Amazon brand aggregators.
Aggregators, or acquirers, are privately backed umbrella companies that purchase FBA brands to create a portfolio of powerful, often cross-pollinating acquired Amazon businesses. They have teams of industry experts as well as enormous amounts of capital, marketing, and logistical knowledge.
Most of the hype about FBA acquirers entering the space is around the hope of getting acquired. As exciting as selling your business to an aggregator might be, what few people think about is the silent ripple effect across the Amazon marketplace every time an acquisition is made.
For every lucky business that gets bought, there are thousands of businesses that now have to compete with an aggregator-run business.
Once a business is taken over by an aggregator, that means they have tremendous capital, personpower, and expertise behind them, as well as a superior supply chain. An aggregator takes what was already a solid business and then turbocharges it.
The question is, what can you, as the owner of a small business, do to compete against these powerhouse aggregators? We’ll explain the challenges faced by everyday FBA businesses competing against aggregators and practical advice to stay ahead as well as continue to grow your business.
The Challenges Faced by the Unacquired
When an aggregator enters your niche, burying your head in the sand and ignoring them won’t be enough to protect the future of your business.
Many Amazon sellers make the mistake of thinking that, after making an initial splash, aggregator-backed businesses will settle down and perform like any other competitor. Unfortunately, this is simply not the case.
An Amazon FBA aggregator will go full steam ahead from day one to become a powerhouse in your niche, creating various obstacles for you as their competitor.
Identifying and navigating these challenges early on will help you to fortify your business and carve out a space for yourself in this new landscape.
Aggregators Have Enormous Spending Power
One of the fastest ways to scale e-commerce businesses is through growth capital, which is one of the key elements that aggregators bring to the table. Amazon aggregators, including Thrasio, Perch, Heyday, Acquco, Boosted Commerce, Forum Brands, Accel Club, and Cap Hill Brands collectively raised over $12 billion in 2021 alone. This gives them the spending power to optimize every aspect of an FBA business, from marketing to logistics.
Aggregators have the funds to research, develop, and launch new products and SKUs at scale, helping them dominate not only your primary niche but also your shoulder niches. They also have the means to order massive volumes of inventory, ensuring that they can easily meet demand and avoid Amazon penalties.
As aggregators continue to raise funding and flood the market with more money, Amazon advertising costs, particularly CPC, are likely to increase too, making it all the more difficult to remain seen by shoppers.
They Have Large Expert Teams
Many Amazon FBA businesses are run by a single entrepreneur, sometimes with the help of a VA or marketing assistant.
Aggregators, on the other hand, have teams of experts who specialize in specific aspects of an Amazon business, from PPC campaigns to social media marketing.
When an aggregator enters your niche you may have 50 PPC experts, 25 supply chain managers, and 200 copywriting experts to contend with, all from just one aggregator alone. It’s tough to outcompete fleets of experts no matter how good of a solopreneur you might be.
They dominate the search results
A common complaint from third-party sellers is that when aggregators enter their niche, they dominate the search results, demoting their competitors further down the rankings and into relative obscurity.
Previously, you and your competitor would fight neck and neck for the best keyword ranking. Now the aggregator-backed business has the expertise, funds, and technical prowess to pull the rug out from under you and take control of the SERPS, both on Amazon and Google.
Most FBA businesses rely heavily on organic traffic, so this will likely have a large impact on your ability to attract new customers to your listings.
They Can Pool Resources
Not only do established aggregators have superior spending power, but they also have a portfolio of similar companies under their control. This allows them to leverage economies of scale.
Economies of scale refers to the cost advantages gained by increased levels of production or output. Put simply, you save money by spreading your production costs out over a larger number of goods.
By pooling their resources, aggregators can use one manufacturer for a handful of businesses, combine multiple inventory orders into one shipment, and store them all in the same 3PL warehouse, thus massively reducing their overhead costs.
Over and above optimizing their supply chain, aggregators can combine resources like customer lists. Since most of their acquired businesses operate within similar niches, they can cross-sell between their own brands, guiding consumers down a sales funnel that includes multiple businesses.
How Can You Compete With an Aggregator-Backed Business?
Having realized the grim reality of going head to head with aggregators, it’s important to note that all is not lost.
Does having an aggregator buy your biggest competition up the stakes? Yes, without a doubt. But that doesn’t mean it’s impossible for you to gain the upper hand.
There are various ways that you can outpace an aggregator-backed business.
Take Advantage of Your Flexibility
Aggregators’ vast personpower and capital can be intimidating, but these elements can also be a great source of weakness.
Aggregators have an inner hierarchy, a chain of command that important business decisions need to pass through. They are also under pressure from their investors to prove the business’s profitability and begin to pay off the massive debt they raised to acquire businesses. All of this slows down their reaction time.
Whereas, you? You’re your own boss. You can make decisions on the fly. Your ability to react quickly is an opportunity to outmaneuver the aggregator-backed businesses.
Another strategy would be to keep your eyes peeled for new and emerging trends. Meet them head-on before the aggregators have a chance to mobilize and assemble the necessary team to compete with you.
You could take advantage of the social commerce boom by selling your products directly on social media platforms, or cash in on Amazon’s predicted sustainability drive by selling used or refurbished products alongside your normal inventory.
This ability to quickly pivot your business will allow you to be the first in the door and gain the first-mover advantage.
Build a Moat Around Your Business
If you’ve been an Amazon seller for many years, it’s worth remembering that aggregators are the new kids on the block.
Yes, they may have teams of experts at their disposal, but no one knows your business, niche, and audience like you do.
Identify what sets you apart from your competitors and hone in on that. Things like strong brand identity and customer loyalty take years to build up, so if you’ve got them, take advantage of them.
Go the extra mile with your customer service or consider starting a loyalty program to incentivize customers to refer your brand to their friends and family. This will help to create a word-of mouth-engine for your business and keep consumer attention firmly focused on your brand instead of your competitor’s.
Optimize your listings
On Amazon, the old saying out of sight, out of mind rings true. With aggregators dominating the search results, you need to do everything you can to make your listings as eye-catching and relevant as possible.
Designing captivating Amazon product listings will create a unique brand experience for your customers. Use high-quality images and videos to help your products stand out from the crowd.
It will take aggregators a little while to get a handle on their new acquisition’s unique voice and brand identity. You know your brand inside and out, so capitalize on this advantage from the get-go.
Identify Low-Competition Areas
While it’s unlikely that you can evade aggregators forever, there are ways to keep them at an arm’s length for the time being.
Many aggregators have preferred niches that they like to operate in. If you’re a startup, are new to Amazon, or are thinking of launching your own private-label product, do some market research to identify niches that aggregators tend to pass by.
While the European Amazon marketplaces are certainly gaining traction and attracting attention, particularly from German aggregators like Berlin Brands Group, Stryze, Razor Group, Amazing Brands Group, and Merx, the competition is not nearly as fierce as it is in North America. Again, this won’t last long, but if you have the capacity to expand into Europe, now would be a good time to take advantage of the European Ecommerce boom.
Another avenue to pursue is diversifying your sales channels and expanding into other DTC platforms like Walmart or Shopify. Many aggregators are firmly focussed on Amazon, so this will give you a chance to market your products in a relatively “aggregator-free space”.
Play Aggregators at Their Own Game
A lot of an aggregator’s power comes from their portfolio of similar businesses. While it’s unlikely you have the capital to buy out your biggest competitors, there are ways to replicate this roll-up strategy on a smaller scale.
Do some competitor research and look to acquire smaller businesses or newcomers to the scene who have a lot of potential. You could also purchase a declining business with untapped growth opportunities that align with your strengths.
Another strategy that aggregators are branching into is purchasing content sites that operate within the same niche as their FBA businesses. This is often referred to as a roll-up or bolt-on acquisition.
Content sites offer you leverage, including a captive audience with a pre-established interest in the product you’re selling. Let’s say you sell products in the pet niche. You could purchase a content site centered around caring for your pets, and then recommend your products as a solution to the reader’s problems.
If You Can’t Beat Them, Join Them
Aggregators are always on the hunt for their next acquisition. If your goal is to be acquired, having an aggregator purchase your competitor’s business is actually a good sign!
It shows that aggregators are interested in your niche and are actively pursuing businesses that are similar to yours. It’s also highly likely that, as their competitor, you are already on their radar.
That leaves you with two things to do. First, you should align your business with what aggregators look for in an acquisition. This includes things like a good business reputation, a high number of positive product reviews, a streamlined production process, and a low level of owner involvement in the business.
Second, you need to signal your intent to the aggregators. Not every Amazon business owner wants to sell their business, so aggregators tend to look for businesses that are already on the market.
While it is possible to approach some aggregators directly, you have a much higher chance of being acquired if you market your business to a wider pool of buyers.
By submitting your business to our marketplace it stands the chance of being seen by multiple aggregators simultaneously. The Empire Flippers marketplace also attracts other hungry buyers, such as private equity firms or high net worth individuals, who are looking for smaller FBA brands to get a foot in the door on Amazon.
A Sure-Fire Solution to Ensure Success
Even if you aren’t feeling the pinch from aggregators yet, it’s only a matter of time before they stray into your niche.
One way to ensure that aggregators don’t erode your hard-earned profits is to sell your business now, while it’s still growing.
Selling now doesn’t mean that you’ve failed. It simply gives you the freedom and capital to strategize, and redirect your entrepreneurial efforts in a direction that is more likely to bring about success.
If you’re on the fence about whether selling is the right decision for you, there’s no harm in preparing your business for sale while you think it through.
There’s a whole checklist of things you need to take into account when planning an exit strategy. Preparing your business for sale in advance will allow you to be more nimble and will ensure that you are poised and ready to make a profitable and speedy exit when the time comes.
If you’re ready to take the leap and sell your Amazon FBA brand, use our online business valuation calculator to find out how much your business is worth. Alternatively, you can schedule a call with one of our business analysts who will guide you through our sales process.
