Why Did Investors Put $50 Mio. in Direct-to-consumer Fmcg Startup Brandless?
Here comes the next direct-to-consumer brand startup. This time it‘s about FMCGs. Brandless is a mixed bag. The US startup raised $50 million over three rounds before launching.
Brandless, the brainchild of serial entrepreneurs Tina Sharkey and Ido Leffler, hopes to take advantage of this new environment and change the way consumers buy everyday essentials. It’s hoping to make going to the grocery store to stock up on pantry items a thing of the past with its direct-to-consumer business model and $3 price point for every product it offers.
The new environment TechCrunch is speaking of here is the world of Facebook and YouTube which dramatically changes how you can build a brand compared to the mass media era.
The big innovation at Brandless was to make a wide range of household staples and sell them all at a single price. By stripping away what it likes to call the “brand tax” — i.e., all the costs related to the traditional consumer packaged goods distribution model — and going straight to the consumer, Brandless can offer its goods at 40 percent less than comparable products on average.
Brandless‘ ‚essential‘ collection only comprises of a couple hundred items.
Brandless‘ other differentiation is in the packaging, going for highlighting ingredients and using generic names for its products (making me at least wonder how they managed to successfully trademark those generic names):
Another key difference is Brandless packaging, which seeks to highlight the important details of each product. That means pointing out what’s non-GMO, organic, fair trade, or kosher, as well as which things are gluten free or have no added sugar.
Vegas previously worked at Target for 15 years, where she most recently oversaw the company’s center-of-store grocery business. […]
Prior to Sherpa, Sharkey served as CEO of Johnson and Johnson subsidiary BabyCenter and had also co-founded the online media company iVillage. Leffler, meanwhile, has founded a number of consumer brands, including Cheeky, YesTo and Yoobi.
Business Insider on the pricing strategy:
Some of the cheaper items are bundled together to reach a fair price.
The $3 price was chosen because the founders saw it as a middle point between value and quality, and they theorized that fixed pricing makes consumers feel at ease. They also said that Brandless is currently developing other lines at different fixed price points, but with the same value proposition as the “essentials” line.
Makes sense. But this fixed price point is still puzzling to me. One assumption here is that this is mainly a PR strategy: It provides Brandless another angle for the launch narrative to talk about to the press. It also hammers home the point of static prices. The latter is indeed an interesting differentiation in world where more and more people are becoming aware of the dynamic nature of prices at Amazon and other places.
In fact, a lot of people probably overestimate the dynamic nature of pricing at Amazon et al., meaning they feel they experience a higher price volatility than there actually is in reality. This is actually good news for Brandless: This feeling of unease helps Brandless cut through. It also means that if (a big if) Brandless is successful Amazon would have a hard time responding to the “static prices at our shop” claim.
One problem with the static prices and the constant price point throughout the “essential” collection is this: This makes it hard, very hard, for Brandless to incorporate what they‘ll learn form their customer‘s behavior. With this price structure they can‘t really experiment on product sizes. But in theory a direct-to-consumer brand selling FMCGs across multiple categories should learn a lot about buying behavior over time. Enough to, at the least, change and optimize product sizes accordingly. That is also why Amazon‘s private labels and the Dash button form such a strong team together.
That is why I see this price point mainly as a PR strategy that probably won‘t last (and it doesn‘t need to). Brandless certainly will keep a comparatively simple price structure. This fits with the overall ‚let‘s reduce the paradox of choice‘ Brandless is going after without actually name-dropping the book.
There’s also only one choice for each individual item, which the founders say prevents shoppers from being “paralyzed” by choice.
The idea for the company came as the founders looked at how consumer behavior has changed, and how many name brands are struggling.
“The false narrative of modern consumption, that brands have created and products have created, was actually dying a fast and painful death,” Sharkey said.
This is, again, a bit much for my taste but you gotta hustle.
Brandless also is offering a subscription service. Business Insider:
Brandless is also offering a subscription service called “B.More.” The membership, which runs $36 a year, lowers the free shipping threshold from $72 to $48. For all other orders, a flat shipping rate of $9 is charged. The founders promised more benefits for B.More members, including a donated meal to the nonprofit Feeding America, in addition to the donation that is already made after each Brandless transaction.
Now, how attractive do you think does this sound in the land of Prime? For $72, one needs to buy at least 24 “essential” items. For $48, one still needs to buy 16 “essential” items. I don‘t see this working out. Brandless is facing big challenges here.
A lot of people may look for cheaper, more predictable FMCG shopping online. But are those people willing to go for such comparatively large shopping cart values? I doubt this.
So, how did Brandless managed to ge $50 million in venture capital before launching?
Dollar Shave Club and Jet.com.
The acquisition of direct-to-consumer brand Dollar Shave Club to Unilever was the biggest e-commerce exit last year; until Walmart bought Jet.com. Jet.com‘s Marc Lore on the other hand is now buying direct-to-consumer operations for Walmart to build an online portfolio that can take on Amazon. So, there is your clear exit strategy. Already, the press is talking about the “P&G for millenials”. Maybe P&G will buy Brandless if Walmart is not interested?
Building a direct-to-consumer business is one way to succeed besides Amazon and other big platforms and marketplaces. It is just not at all clear if Brandless‘ positioning will work.
Here‘s a hint though: Forerunner Ventures, the VC that invested in both Dollar Shave Club and Jet.com, is not (yet, at least) an investor in Brandless.
More on this topic:
* Here Is What a Big Part of Amazon’s Endgame Looks Like
* Here’s the Investment Thesis of the VC Behind Jet.com and Dollar Shave Club
* U.S. Ecommerce After Jet.com and Dollar Shave Club: VC Is Back in Town?
* Dollar Shave Club, Jet.com & the Rise of $1B+ Acquisitions by ‘Non-Tech’ Companies
* Direct-to-Customer: What Mack Weldon, the Next Brand Superstar, Is Focussing On
* Walmart Is Acquiring Bonobos for $310 Million in Cash
* Inside Marc Lore’s Head, Who Will Either be Walmart’s Savior or Its Destroyer
* The Weird Eve Sleep IPO and the Mattresses Hype