I just bought $30 worth of groceries and cleaning supplies on a site called Brandless. You may have heard about it in the news this week, alternatively billed as the online grocer that sells everything for just $3, the startup that raised $50 million in funding to disrupt the industry, or as the Ikea of food. Essentially, it’s an online retailer that offers consumer products for a very low price, which it’s able to achieve by forgoing brand name products, cutting out intermediaries, and offering a limited selection.
It’s a concept shaking up the consumer packaged goods (CPG) industry, typically defined as the products which developed-world consumers use every day or replace frequently—meaning everything from shampoo to snacks, and mugs to mouthwash. The industry has already been shaken plenty by online retailers like Amazon and the proliferation of store brands, but Brandless takes it one step further by circumventing the entire model.
Brandless co-founder Tina Sharkey said on CBS this week that “the way in which goods are bought and sold in this country are broken, in that CPG companies don’t actually have consumers—their customers are the stores…[products] go through lots of inefficiencies to actually get to that market.” That’s where Brandless comes in, eliminating the middle-men and selling directly to consumers (thus the analogy to Ikea). It’s what the founders call eliminating the “brand tax” on basic products.
In a Fast Company article yesterday, the founders noted that they were inspired by the direct-to-consumer model pioneered by fashion company Everlane. Nothing similar existed for CPG despite a similarly complex distribution and marketing model, so they created a new model that aims to make good-for-you products (think GMO-free, organic and FSC-certified) more accessible. Aside from a streamlined supply chain, lower average margins and lower costs for advertising, the company works to keep costs down by carrying only one version of every product, which is determined after a rigorous testing process.
The net effect is a drastic reduction in choice: one product per category instead of 40 types of ketchup at shelf or pages and pages of results online. The disadvantage is an extremely limited selection on the site, and you're out of luck if you don't like a certain flavor or ingredient in a product. But that limited selection also has a silver lining: it may relive the "paradox of choice,” the paralysis people feel when faced with too many variations. In retail, the implications are that too many options increase stress, make shopping take longer, and sometimes mean consumers don’t purchase anything.
The flat-rate pricing is also curious: since everything is $3 or less, the savings are not distributed evenly across all of the products; a box of organic coffee pods nets you a much bigger savings on comparable retail brands than a $3 bag of cotton balls; the latter would cost about as much at any other store. Brandless is clearly depending on the overall experience and net savings—and no doubt the “everything is $3” buzz—to win shopping carts and customers.
The Brandless mission includes language you might expect around transparency and quality, and really boils down to "better stuff, fewer dollars" for consumers who are more interested in the product than the narrative built around it. That narrative for CPG products in mainstream channels, the founders say, has become a drumbeat that pressures consumers to buy more and spend more in an effort to fulfill unrealistic expectations set by marketing and advertising.
As a marketer, I find it hard to swallow that all advertising is bad. Some of it is objectively valuable and much of it is necessary; particularly when brands are rolling out new technology and new products, advertising is a critical awareness tool in the marketing plan. Even Brandless needs to market their services—clearly something they understand given that they trademarked an empty white box where a brand logo would normally go. But I certainly respect where the founders are coming from, and it's an intriguing business model if they can keep up with demand, quickly expand the product line to keep customers coming back, and live up to the quality promise - challenges many other CPG startups have struggled with.
Will Brandless disrupt the entire CPG marketing industry? Perhaps not yet. The selection is indeed limited, some things were out of stock, and I don’t trust store-brand skin care or hair care. In fact, I value the research that companies like P&G and Unilever put into the safety and efficacy of their products; that’s a big part of why I’m willing to pay $22 for a tiny jar of eye cream.
The more likely scenario is that Brandless will chip away at branded CPG market share and inspire other new entrants to do the same. Whether Brandless comes out on top will depend on their ability to increase the variety of products offered and ensure the delivery of quality products and experiences with consumers. In the meantime, we predict they’ll be good for a while on media buzz—that $3 price tag for everything was a stroke of genius.
More importantly, what brands should pay attention to is the fact that there’s a whole generation of consumers out there that care more about transparency, quality and value than brand loyalty and social cachet. Yes, the latter still matter to some, but savvy marketers will help CPG companies adapt to changing consumer needs and desires, bringing more authenticity and transparency without losing a brand’s equity and soul.
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