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The $3 Peanut-Butter Club? Startup to Test the Power of Brands

A new online retailer is betting it can get American shoppers to break up with big brands from Colgate to Heinz.

Called Brandless, the San Francisco-based startup on Tuesday started selling generic, health- and environmentally conscious consumer staples, such as fluoride-free toothpaste and organic agave nectar. Everything will be priced at $3.

The business model: Cut out supermarkets and traditional marketing, funneling that money instead toward making products that can compete with pricier, name-brand counterparts.

In doing so, Brandless aims to capitalize on a packaged-goods sector in upheaval, one that faces increasing competition among both high-end and discount brands as well as consumers who are doing more shopping online and demanding less-processed foods.

“It’s an inefficient process,” Brandless co-founder Ido Leffler said of the traditional system of packaged-goods companies selling their products through brick-and-mortar retailers. “We are re-appropriating those dollars back to the consumers.”

The 115 products that will be initially available are generally more expensive than their big-brand rivals. Brandless hand soap, for instance, costs 31 cents per ounce, more than Dial, which goes for about 27 cents an ounce on Target Corp.’s website for a similarly sized bottle.

But compared with hand soap sold by Whole Foods ’ private-label 365 brand, which has a similar emphasis on natural and healthy products, the Brandless option is cheaper, by about 9 cents per ounce.

Brandless hopes its simple, one-price-for-every-product proposition will be another draw, much like the Dollar Shave Club, which upended the men’s razor market when it introduced a subscription service costing $3, $6 or $9 a month. In a few cases, $3 buys multiple Brandless items, such as a two-pack of organic macaroni and cheese. Shipping is $9, or free for orders of $72 or more. People who pay a $36-a-year membership fee get free shipping on orders of $48 or more.

The trick, industry experts say, will be to convince shoppers that Brandless products are of a high enough quality that shoppers feel like they are getting a deal.

“They need to make sure their quality is by far the best in the market for the price they are charging,” said consumer-products consultant Thom Blischok, especially since price-conscious Americans, who comprise nearly three-fourths of the U.S. consumer market, generally aren’t willing to experiment with their household staples.

David Garfield, head of the consumer-products practice at consulting firm AlixPartners, said the concept could appeal to millennials who are less brand-loyal than older generations, and more inclined to shop online. Brandless is, he said, “seeing the factors and phenomena in the market in the right way.”

He added, however, that consumer-goods companies spend heavily on advertising and prominent shelf placement because those techniques pay off. “They are underestimating how difficult it is to thread the needle and execute,” he said.

Mr. Leffler, who has founded several other startups including a line of natural beauty products and another of school supplies, has been working on Brandless since 2014 with his co-founder, Tina Sharkey, former chief executive of strategic advisory firm Sherpa Foundry. She also was an investor in venture-capital firm Sherpa Capital, whose investments include Uber Technologies Inc. and Slack Technologies Inc.

Much of their several years developing Brandless was spent combing the industry for suppliers who could provide products that are organic, gluten-free, free of genetically modified organisms or have other health-conscious credentials. Orders placed on brandless.com will be shipped from two distribution centers, one in California and one in Indiana, with most delivered to shoppers within two days.

The company plans to focus its marketing on social media and free samples, rather than costlier avenues like television and print advertising, Ms. Sharkey said. “We’re not anti-brand, we’re reimagining what it means to be a brand.”

As an online operation, the company won’t have the overhead pressures that have forced traditional retailers like Wal-Mart Stores Inc. and Target to push their biggest suppliers to cut prices. Brandless plans to double its lineup of merchandise by mid-September and eventually expand the price range. The company said it has received $50 million in funding from investors including New Enterprise Associates and Google Ventures.

Mr. Leffler said the company doesn’t necessarily expect to replace Amazon or the grocery store.

“The average consumer shops in multiple locations,” he said. “For some people, we’ll be their everyday destination, and for some people we will be their No. 5.”

Corrections & Amplifications 
Brandless’s annual membership fee is $36, and the company is shipping orders from two distribution centers, one in California and one in Indiana. An earlier version of this article incorrectly said the fee was $35 and that orders were shipping from three centers. 

From_wsj.com

For more information, see “Read More”

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