New CPG e-tailer Public Goods to sell products at cost
Public Goods, a Brooklyn-based online consumer packaged goods company, launched on Tuesday with a selection of natural products like biodegradable toothbrushes, tree-free toilet paper and natural shampoo sold at cost. The company manufactures its own products, which it says are of higher quality and on average 50% cheaper than comparable products on Walmart and 60% cheaper than those found on Amazon, according to a company press release.
The company, which previously launched in January 2016 under the name “Morgans,” will make its money through monthly or yearly membership fees. While Public Goods in its announcement didn't mention what those fees are, a Morgans membership was $12 per month. A request for that information from Retail Dive wasn't immediately returned.
The approach is much like Jet’s initial foray online, (although that retailer quickly abandoned its membership model, before being snapped up by Walmart last year for $3.3 billion) and the $3-for-everything at new consumer products retailer Brandless.
Private-label consumer products, a longtime niche offered by grocers to their most budget-conscious customers, is emerging as a major play in the space. Younger shoppers, particularly the millennials who came of age during the Great Recession, are less brand-loyal than their parents and grandparents, and that’s provided fertile ground for retailers with high-quality private label brands.
The number of heads of households shopping at dollar stores under 35 years-old earning more than $100,000 a year increased 7.1% between 2012 and 2015, compared to 3.6% at all retail stores, according to Nielsen research. Some 29% of millennial dollar store consumers earn over $100,000 annually and accounted for about 25% of sales at those stores, much of it no-name brands of common household items, according to market research firm NPD's Checkout Tracking.
Amazon's private label detergent, baby wipes and batteries, to name a few, are experiencing runaway growth in several categories, according to research from 1010data and One Click Retail. That can make deciding whether or not to sell through Amazon a tough decision for a brand. On the one hand, brands can control much of their marketing and branding; on the other, Amazon knows what and how much they're selling and might develop a competing item based on a best-selling product. The e-commerce giant is now leveraging Whole Foods' private label 365 label both on and offline. And the core enticement by German grocers Aldi, Lidl and Trader Joe's is an all-private label offering that on some products undercut rivals in price by 30%.
The membership model, however, may be saturated, according to Keith Anderson, VP of strategy and insights at retail intelligence firm Profitero, which is likely why Jet abandoned it so readily. Aside from Jet, Public Goods' model (making money on memberships rather than on merchandise) most closely resembles Costco, though Amazon, which sponsors many membership perks including free shipping, also brings in $99 each year from each of its Prime members.
Public Goods founder and CEO Morgan Hirsh said in a blog post Tuesday that he ran a 100-year-old leather goods factory for many years, selling to brands like Barney’s and Ralph Lauren. "I saw first hand how something that cost us $10 to produce would end up on the shelf for $150," he wrote. "I knew there had to be a better way. I wanted to change the world by making high-quality products that people actually need — like food and bathroom supplies — affordable, which is where I got the idea for Public Goods."
In that post, Hirsch addresses comparisons to Brandless, saying that Public Goods is about quality first as opposed to price. (All Brandless items are $3 apiece.) "This means they have to warp the quality of their items to fit within this pricing framework," he said. "Customers are paying way too much for some of the products and suffering on the quality for others. If the best possible soap we can produce costs $2, we’ll charge you $2. If it costs $4, we’ll charge you $4."
Though their longevity remains to be seen, the entrance of Brandless and Public Goods into consumer products marks yet another challenge to brand-name CPG makers and the retailers that sell them. The simplicity of the new models could well appeal to many consumers, especially those less moved by big names.
"We really believe that today’s customer wants endless assortment, but I think there’s going to be a backlash," Sargent told Retail Dive about Brandless. "Costco has actually done this for a really long time and done it successfully. I think [Brandless is] on to a trend. How they execute it, I’m not really sure, but I’m really intrigued by their approach of curating an assortment. As we’ve seen from Trader Joe’s and Costco, it can be successful, but the question is: Is there a space for it online? Could this be a way to deliver cost efficiencies that even an Amazon can’t match with its brand?"
Still, the major brands, at least for the moment, continue to have an edge, according to Steven Barr, PwC’s U.S. retail and consumer sector leader. "The consumer products companies have built world-class products that are highly effective," Barr told Retail Dive earlier this year. "Let’s not forget that many of the brands have created tremendous trust and loyalty with their overall brand and identity so many consumers have come to trust particular brands."
- Public Goods Interview with Morgan Hirsh, Founder and CEO
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