Are $3.00 generics a sound grocery e-tailing model?

Discussion
Source: brandless.com
Jul 17, 2017
Tom Ryan

A new website, Brandless.com, just launched, selling everyday items “from snacks to soap to serving spoons” for $3.00 each. The catch: all items are generics.

Started in 2016 by Sherpa Capital venture partner Tina Sharkey and entrepreneur Ido Leffler, Brandless has raised $50 million to date.

In a blog entry, the founders wrote that national brands on average charge 40 percent more than same-quality generics. While the mark-ups are said to support the quality of the products, “they rarely do.”

“At Brandless, everything is ‘BrandTax-free,’ which means we’ve stripped out all of those excess costs,” the founders wrote. “It’s how we’re able to offer the best stuff at the fairest price, everyday, to everyone. That’s why our Daily Moisturizing Facial Lotion costs 367 percent less and our Blueberry Flax Granola costs 90 percent less than top household brand products with similar quality and ingredients.”

Brandless promises “better” product quality. Many food items, for example, are non-GMO, organic, certified free trade and free of preservatives. Brandless strives to keep costs low by selling directly to consumers, working directly with manufacturers and offering limited assortments.

While limited, the founders tout the benefits of “streamlined shopping” with Brandless’s edited assortments of better products. Their blog entry reads, “We’re not overwhelming you with options (there aren’t 100 pasta sauces to compare, there are three) or forcing you to over-consume (no need to stock up to save, you can get great value buying just one).”

Launched with 115 products across food, health & wellness, beauty and home goods, Brandless expects to double selections within two months. The company charges a flat shipping fee of $9 but orders totaling at least $72 (26 items) are shipped for free. Brandless will also be donating a meal to Feeding America, the hunger relief organization, for every order.

Brandless’s chief merchant is Rachel Vegas, who was formerly VP, GMM, center store, grocery at Target.

“We’re doing a couple of different things that are game-changing,” Ms. Vegas told TechCrunch. “People see ‘Brandless’ and think, ‘Are you anti-brand?’ Absolutely not. We’re redefining what it means to be a brand.”

DISCUSSION QUESTIONS: Will $3.00 generics available online hold much appeal for consumers? What will be the keys to Brandless achieving success?

Braintrust
"I can definitely see this website picking up steam."
"As a Millennial, I find many of my contemporaries shunning the large CPG companies for smaller, values-focused companies..."
"Consumers could react in different ways toward this concept and it may depend on the type of product being sold as well as the static price point."

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23 Comments on "Are $3.00 generics a sound grocery e-tailing model?"

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Ken Lonyai
BrainTrust

This is a contemporary rehash of no-frills products that swept into supermarkets in the 1970s. No-frills had a limited lifespan then and it’s way too early to know if it will work for e-commerce. If the lore about Millennials being cost sensitive is true, they have a shot. And if, “if” Brandless catches on, it will be another shot across the bow of stalwart CPG brands which have seen a few of those shots heading their way lately.

Keith Anderson
BrainTrust

This looks like a very early version of an interesting idea. Single price points are intriguing and cheap is chic. But Brandless will face stiff competition from Amazon and Jet, which have significantly better demand data.

The Brandless membership and delivery fee architecture is also a non-starter — they’ll have to adjust it to attract mainstream customers. Single price points may also force pack configurations that don’t align with consumer preferences. And without reviews or richer product content, they’ll have a tough time convincing shoppers of their quality.

Still, I wouldn’t count them out based on this first iteration.

Dr. Stephen Needel
BrainTrust

$3 for a pound of spaghetti? I’m not feeling it. And they are going to have to deliver big-time on taste, too. There may be a market for this offering, but it will definitely not be mainstream.

Max Goldberg
BrainTrust

Aimed squarely at Millennials, Brandless wants to capitalize on a desire for quality at a low cost and they’ve thrown on cause marketing as the icing on the cake. They’ve also made it easy to shop by eliminating multiple SKUs in each category. I like the bundles they offer, such as $51 for a complete set of kitchen gadgets — a perfectly quick and easy way to stock the kitchen of a college student or young worker. The $72 minimum order for free shipping might become a hurdle but, overall, Brandless has tapped into a potentially lucrative niche.

Brandon Rael
BrainTrust

The move to a generic healthy, organic, non-GMO CPG product strategy may successfully resonate with both the Millennial and Generation Z segments. Whole Foods, who is battling the “whole paycheck” reputation, has increased their 360 assortments, which provide significant value to their consumers.

The concept of brands does not have the same significance that it did as recently as 10 years ago. Consumers are increasingly health conscious and at the same time price conscious. A direct-to-consumer, e-commerce-based and vertically integrated model could provide significant value to consumers and take off beyond expectations.

Art Suriano
BrainTrust

I can see this being successful as customers are always looking for bargains. Look at the success of dollar stores. However, it will come down to the individual customer’s choice of what they feel comfortable purchasing. Certainly buying a serving spoon for $3 is less of a risk than a food item. So I believe there will be a market for this concept. But as with anything only time will tell how successful as the retailer figures out what products work or do not and if they can “wow” the customers enough for consistent repeat purchases.

Lyle Bunn (Ph.D. Hon)
BrainTrust

Where do we think generic products are made and what assurances do consumers have related to standards to quality and safety? While there is an appeal to the price conscious, let us hope for (and support) communications that allow a broader definition of value to apply toward increasingly informed and discerning consumers. I personally would rather consume less while knowing that the price I pay reflects research, supply sourcing, engineering and a supply chain that respects workers. Total value matters more than purchase price.

Jasmine Glasheen
Staff

I can definitely see this website picking up steam. All of the components are there: perceived quality, low prices and altruism. Plus, Gen Z customers are anti-brand and will love the pragmatism of removing the “brand tax.”

Nikki Baird
BrainTrust

Meh. I feel like this is a lot of hype for what is not fundamentally any real, differentiating business model. This whole “brandless” argument is the worst kind of marketing hype and it must be a slow news week because I’m a bit startled at just how much attention the concept is getting. They’re advertising, they’re promoting, they still have to make consumers aware of them. They have to make an investment into educating consumers about the value proposition involved in the products they’re selling, which is basically low price and quality ingredients. The only thing a brand is, when it comes down to it, is a shortcut to understanding what you can rely on about the products you’re buying. That’s it.

So they make you buy them in round-dollar increments ($3 won’t be the only price point forever) — which, as others have pointed out, is not any different than a dollar store, just with a bit more confidence that the stuff didn’t come from a container washed up from China. Like I said, meh.

Laura Davis-Taylor
BrainTrust

Lyle and Nikki hit home on the key point: total value. Value today is so much more than price … unless you are a shopper that only cares about the bargain. Those people are the most promiscuous out there, so why would they be beholden to one outlet only? Let’s face it — if I want a serving spoon as cheap as I can get it, it’s going to be at the Goodwill. The hunt is half the fun for those folks!

This said the site it done well, as is the packaging. But to me it feels more like an Amway play than a full-spectrum e-commerce site.

Jason Goldberg
BrainTrust
Digital disruption of grocery shopping is going to necessitate all kinds of interesting new CPG business models. But in it’s current form I don’t see Brandless getting traction. The problem is that (unlike traditional store brand “generics”) Brandless isn’t for sale at a location or touchpoint where people are already shopping. You don’t come to Kroger for a national brand and then discover Brandless. Rather, you have to explicitly go to their URL and buy from them. That means that they may call themselves “Brandless” but they are going to have to spend A LOT on digital advertising to get eyeballs. Think along the lines of Jet.com that was paying $50/customer in acquisition costs. Brandless acquisition costs could be even worse … remember they can’t win by getting someone to their site that needs $3 peanut butter, they need to get someone to their site that wants/needs to buy 26 items (to get free shipping). No one wants to pay shipping and they certainly aren’t going to want to join a club who’s only benefit is to “lower” shipping. I love the effort to disrupt a digitally immature industry and Brandless may well be able to “pivot” to a different… Read more »
Debbie Hauss
BrainTrust

Consumers could react in different ways toward this concept and it may depend on the type of product being sold as well as the static price point. Often shoppers have a more positive brand perception of products that are marketed as luxury or at a higher value, so the $3 across-the-board price may not resonate with some. Shoppers may be more willing to try out more commodity-type products via this offering at first to help determine their view of the brand, then they might veer toward different items. Or because it’s such an inexpensive price point, some consumers may be willing to give all the products a try, since it is a low financial risk. It will be interesting to watch the brand develop.

Ralph Jacobson
BrainTrust

What’s the old adage, “What’s old is now new again”? I can remember when the grocer I worked for introduced generics around 1977 and lead the marketplace with them for years, even launching a spinoff chain with generics only. With shoppers looking for value more than ever, and switching between brands at an all-time high, I’d say it’s been long enough of a cycle for generics to make a return to the marketplace.

Cate Trotter
BrainTrust

I think Brandless has opened up the door for an interesting conversation about what brands mean to customers in today’s retail industry. Does quality trump brand name? If Brandless can deliver high-quality products at $3 a piece does that make them more attractive than a big name brand? However cost-savvy customers will be comparing whether generic products at $3 are actually cheaper than the big name alternative in every case. As we see with dollar and discount stores, what seems cheapest is not always!

Also as others have mentioned, while they may not be selling “brands,” Brandless still has to build its own brand in order to make its model work. Obviously the price point is one way of doing this, and the social aspect is another, but getting its name in front of people is going to be key. I can see this appealing to younger shoppers who might be struggling with high bills and low wages, but are also wanting products that meet their values like free-trade, organic etc. In that respect Brandless could be successful.

Kim Garretson
BrainTrust
4 months 9 hours ago

Reminds me of the meat brand No Name. After years of little promotion but great distribution, pricing and word of mouth, the no brand in effect became a brand. If Brandless is lucky, this might happen here.

Mohamed Amer
BrainTrust

Interesting concept that goes after the branded pricing premium while trying to become the online version of the “dollar store” format. Although they’re setting up Brandless as the new anti-brand, it is branding in itself and that takes deliberate set of marketing actions, dollars, and time.

I do like the idea of simplified assortment with healthy ingredients. However, it’s difficult to imagine that a visit to the website will become a regular habit for enough shoppers to provide long term traction. Are people today really searching for this alternative, or is there an unidentified need for such a format? Not so sure about that, but certainly a risk worth taking.

JJ Kallergis
Guest

As a Millennial, I find many of my contemporaries shunning the large CPG companies for smaller, values-focused companies that are hyper-focused on a smaller subset of products. Large CPG companies overall have struggled for some time lately and if Brandless, Amazon, et. al. continue with the progress they have made on the digital front, they will continue to lose share as traffic and comp sales decline.

But I do not take this loss in market share to mean that people overall have shunned brands. There is some leakage to smaller, local and organic brands where there is noticeable difference in quality and ingredients. And there will be more leakage to digital competitors with private labels perceived to be equal quality where consumers can fill their baskets with products to achieve free shipping and more convenience than running to their local store for the store brand equivalent.

Brandless is a great concept, but with such a large basket amount for free shipping, and going against Amazon with Basics (and now 365 Everyday), they have a steep uphill climb to gain more traction and become a destination for more consumers.

Jerry Gelsomino
BrainTrust

I saw the founders interviewed on CBS This Morning. It was an interesting discussion. They may be best developed by concentrating on one category to start — cleaning products, or breakfast food, or canned goods … or kids’ tastes, just to create a start-up hook and broaden the selection in a specific theme of goods.

Ken Morris
BrainTrust

Many consumers have become more comfortable buying private label or generic products, as many educated consumers realize that many of the generic products are actually the same as brand name products and come from the same factory.

The challenge will be to keep pricing lower than competitive brand name products and maintaining quality. If a consumer gets burned by a poor quality product, they will not only discontinue shopping on the site but may spread negative news across review sites and social media. The other issue is shipping costs. If a shopper doesn’t have $72 worth of merchandise to order, $9 may be too expensive for shipping. Generics have always been a challenge … when I worked for a large supermarket chain early in my career, we conducted generic pricing experimentation using test and control methods and determined generic velocity increased the closer we got the price to national brand average. The perception being that the generic cannot be as good as the national brand despite the fact that it was frequently better.

Consumers are a finicky lot!

Robert DiPietro
BrainTrust

The ultimate non-brand approach. They have a chance to compete with the large branded companies where most of product cost is marketing, but can they compete with Amazon?

Michael La Kier
BrainTrust

A Digital Dollar Store certainly has some intriguing elements. First, consumers/shoppers don’t think “generic” brand like most in the retail or CPG world — they are simply brands. With many retailers — Amazon included — launching generic brands that market like national brands, this can be a compelling proposition. Second, given limits of the Digital Shelf (seeing dozens of products vs hundreds at once) the SKU-limited approach can actually be helpful to reduce confusion and make decision making easier. Lastly, for certain categories, “generic” brands can make a lot of sense and save shoppers lots. Interesting play for sure.

Jeff Miller
BrainTrust

Of all of the new e-commerce players out there — I give them credit for something that stands out. It really looks to me like a mix of Thrive Market, private label products from Trader Joe’s and style and messaging ripped right from one of my favorites — RX Bars. They will be challenged by many large players online and brick and mortars like Trader Joe’s, Amazon, Jet, Walmart, Whole Foods, Thrive and more. However, if they stay somewhat niche and the quality of the food and service is excellent, I can see them carving out a nice business. It will depend what the VC’s expectations are.

Eventually, if they plan to build more of a brand as opposed to a retailer, it will be interesting to see if they are tempted to sell on Amazon to expand the brand. Same question many brands are facing now across multiple industries.

Min-Jee Hwang
BrainTrust

Selling directly to the consumer and focusing on quality as a point of differentiation instead of a brand is a smart move. Throwing out brand equity and creating a minimalist approach is a bold move that has the potential to appeal to consumers who are looking for low cost, high quality products. The key to Brandless achieving success is building customer loyalty, through fulfilling its promise of high quality. Unfortunately, it is likely that most of the potential consumers of Brandless are not attracted to the $9 shipping cost. They may need to rethink their shipping strategy.

wpDiscuz
Braintrust
"I can definitely see this website picking up steam."
"As a Millennial, I find many of my contemporaries shunning the large CPG companies for smaller, values-focused companies..."
"Consumers could react in different ways toward this concept and it may depend on the type of product being sold as well as the static price point."

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