Brandless launches subscriptions as it looks to build a CPG business

The company’s goal is the same now as when it was conceived: To bring high-quality packaged foods to customers at more affordable prices, and Brandless launched with every item priced at $3. After rolling out a product selection of the most common packaged grocery items — olive oil, flour, peanut butter — the assortment has expanded to include more choices, like cranberry lentil chips, and new categories, like kitchen gadgets and baking accessories. As Brandless expands its products, it stands by the promise that selection is curated to allow for simple decision making and priced transparently.

The company doesn’t share revenue or whether or not it’s profitable but Sharkey said Brandless has loyal customers, which is why subscriptions are something that makes sense.

“By default, DTC brands have to be thinking about lifetime value and repeat rates and how to get customers to stick around with the brand,” said Corey Pierson, CEO of commerce analytics company Custora. “It’s about being more present — while it’s true that old school retail also cares about loyalty and points programs, they’re more concerned about how many shoes they’re selling, product metrics, same-store sales. The loyalty is secondary. For DTC, the customers are the heart of the business and they need to figure out how to get customers engaged.”

“We’re what I call a ‘day two’ company. On day one we listen, and on day two we create. People were asking for organic oatmeal, almond butter, whether by reaching out and asking for it or searching for it,” said Sharkey. “We harvested that and we did it all. We’re always listening.”

Brandless’ positioning is in line with where retail’s digitally native brands have been pushing the market: Cut out the middlemen, offer a better price to customers in return and build a brand (Brandless, by the way, is unabashedly a brand) that people care about enough to both keep shopping and to spread the word. Brandless convinced SoftBank on this premise enough that it invested $240 million in the company in one round, an eye-popping amount that landed it its current valuation.

As DTC brands begin to feel pressure to be profitable, and rely on more traditional methods of growth, like partnerships and physical stores, Brandless has hunkered down on its strategy. But with a year-and-a-half under its belt, perception of Brandless’s big DTC CPG bet has been shaky.

Generally, it’s hard not to wonder why customers looking for cheap and easy basics wouldn’t just shop from Amazon. Retail analyst Chris Walton wrote in The Robin Report that Brandless’ valuation was a sign that investors have lost sight of how to properly value a company, and that the need for new models in traditional areas of retail like CPG is largely overblown. And in September, data from Edison Trends suggested that Brandless’s customer retention wasn’t great: 20 percent of customers who bought from Brandless for the first time in the final quarter of 2017 made another purchase in the next quarter. Three quarters later, that percentage dipped to 13 percent. In a low-margin industry for often replenished products like packaged foods, customer retention is necessary for survival.

Traditional CPG brands like Oreo are thinking about their direct strategies: Oreo-parent Mondelez has been experimenting with giving its many brands, like Oreo and Ritz, “personalities” that people can connect with and driving them to e-commerce sites. But a conglomerate like Mondelez can pour cash into figuring out how to get customers to better connect with America’s favorite cookie and brush off expensive endeavors that don’t work. The stakes are high for Brandless, which has the weight of investor capital behind it.

And Brandless won’t be cutting corners for growth. Sharkey maintains her positioning that it doesn’t belong on the shelves of a grocery store or Target, or sold through an online marketplace like Amazon. When asked about competition, she defaults to the message that Brandless is building a community, and no other brand in the space is attempting that. Even as other DTC brands head to wholesale in order to supplement some of the costs of marketing and customer acquisition, Brandless believes it can do it on its own. Showing up in that setting goes against the brand’s entire premise that shopping for essentials can be done better, said Sharkey.

“We don’t have any plans to ever have Brandless on a shelf. We don’t want to be stacked against all the other choices you have,” she said. “Brandless is simple, fair and curated and you go there and you’re not overwhelmed. You’ll never look at Brandless and see 50 toothpaste choices.”

According to Sharkey, word of mouth is the biggest driver of Brandless sales, and what matters most to her is what her customers are saying: She always reads the reviews, thanks to a Brandless HQ Slack channel called #PeopleLoveBrandless. She read one out loud that just came in on her phone three hours ago, in which a happy customer promised to tell both her neighbors and her choir about the company. In response, Sharkey recorded a memo on her phone to the customer engagement leader: “Please send her something for the choir, period. I can’t take it, period. I need to see the choir and meet the choir. Period.”