New Startup Emerges To Become The Normcore Of CPG
Brandless just launched with $50 million in funding to simplify online grocery. Oh, and everything in the store costs $3.
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Marketers have been investing huge budgets into building brand loyalty for things like dish soap and cereal for decades, but a new startup has just launched to explore what would happen if you stripped the brand from the equation entirely.
Meet Brandless, a digital grocery store founded by entrepreneurs Tina Sharkey and Ido Leffler. You can think of it as an online-only Trader Joe’s in which everything costs $3. Yep, everything. The e-commerce startup launches with a $53 million Series B round led by New Enterprise Associates. Additional investors include Cowboy Ventures, Redpoint Ventures, and Google Ventures.
Brandless says it’s able to provide high-quality products at reasonable prices because it has removed the so-called “Brand Tax,” that is, the cost most CPG companies pay to drive loyalty through branding and advertising. How much are CPG companies investing in marketing? One study estimates that CPG marketing costs companies $225 billion each year. By eliminating this cost, Brandless says it can reduce prices by 40 percent compared to name-brand counterparts, instead of passing that cost off to consumers.
The company’s $3 across-the-board price tags are slightly higher than comparable products from major CPG brands but are generally more affordable than higher end organic products. For example, a 7.5 oz. Dial hand soap on Target.com retails for less than $2 dollars while Mrs. Meyer’s organic brand of soap will cost closer to $4. Brandless’ strategy is to fit squarely in between the two.
The company’s products range from kitchen staples like pasta and granola to household and beauty necessities like hand soap, moisturizer, and all-purpose cleaner. There’s a $9 flat-rate shipping fee, but orders over $72 will qualify for free shipping. As an alternative, similar to the Amazon Prime model, if you purchase a $36 annual Brandless membership fee, you’ll get free shipping each time you spend more than $48.
Brandless’ approach involves combining affordability with high-quality products, all within an easy-to-use, online interface that removes the overabundance of choice shoppers face when browsing the aisle at Target or Walmart. Within Brandless’ online store, the company wants shoppers to feel like the quality and value are consistent across everything they sell, so people no longer have to stop and ruminate over dozens of brands.
The company’s launch coincides with a couple of interesting trends in the grocery space, the first being a generalized decline in CPG loyalty. Per a 2015 Catalina study that looked at the top 100 CPG brands, “90 percent of the leading household goods brands are losing market share on consistently low-growth categories.” Combined with this trend is, of course, Amazon and its recent acquisition of Whole Foods. Amazon’s aggressive foray into CPG and grocery space is certain to further shake things up for companies like Target and Walmart, which are vying to stay competitive by bolstering their e-commerce offerings.
It’s too early to predict how Brandless will fare in this new landscape, but their brand strategy of having no brand at all—e.g. positioning as the “normcore” option within CPG—seems to be soundly rooted in consumer behavior. Studies have debunked the myth that millennials are not brand loyal, but it’s not unreasonable to say that their notion of loyalty is different than that of previous generations. They are also increasingly valuing things like quality and sustainability over price alone, with convenience being an ever-present factor.
In an interview with Business Insider, co-founder Sharkey underscores the broken relationship between CPG brands and consumers: “If you think about how products are distributed today, their customers are the stores, not the end consumer.” Sharkey and Leffler’s model puts the consumer back at the center of the relationship, and grants people the “freedom to … define themselves as who they are, and not what a brand or society is projecting onto them.”
As an added millennial-friendly plus, Brandless is baking social good into its everyday business practices. Not only does Brandless use waste-reducing packaging for its items, but for each online order placed, they’ll donate a meal to Feeding America.
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