Photo: Thrive Market
Do Fewer SKUs Add Up to Better Prices at Thrive Market?
As prices at the grocery shelf remain high nationwide, one e-grocer says that its method for managing inventory has allowed it to keep its prices relatively low while maintaining its margins.
Thrive Market, a subscription-based online grocery store, told Yahoo! Finance that it only carries between 5,000 and 6,000 SKUs compared to the 40,000 one might expect at a traditional grocer.
This strategy, the grocer said, gives the business more “purchasing power” and has allowed it to keep prices low compared to its competitors throughout inflation.
Thrive further chalked up its ability to keep its prices low to its $60 membership fee, which allows it to make money from subscriptions while pushing its prices lower, and its $49 threshold on free shipping eligibility as key factors driving profitability. The e-grocer, which has 1.2 million members, rang up nearly $500 million in revenue in 2022 and had a valuation of more than $1 billion based on its last funding round.
Thrive has been described as a combination of Costco and Whole Foods since its founding in 2014. It promises its members low-priced natural and organic foods sometimes up to 50 percent cheaper than what a customer would find at a competitor. It made its first foray into perishables with an organic meat and seafood assortment in 2018.
The niche grocer rolled out its first national televised ad campaign last year to expand its visibility, Ad Age reported. Previously the company had only engaged in digital marketing. The ad campaign touted low-price organics as a major value proposition.
In a review of Thrive Market’s service, however, a blog called Cheapism recently argued that Thrive’s claim to offer cheaper organics than its main competition does not always hold up. While the blog only looks at a handful of SKUs, it concludes that competitors like Whole Foods and Sprouts tend to offer better deals item-for-item than Thrive Market. The blog also points out different, higher shipping costs and thresholds for frozen products ($20 per shipment, free shipping on orders over $120) and wine ($14 per shipment, free shipping on orders over $79).
Discussion Questions
DISCUSSION QUESTIONS: Does Thrive Market’s business model give it an advantage over the online grocers that it directly competes with? How important are comparatively low prices to success in e-grocery?
Poll
Loading …BrainTrust
Jeff Sward
Founding Partner, Merchandising Metrics
Steve Montgomery
President, b2b Solutions, LLC
The advantage of Thrive’s business model is that it’s sustainable and will not require some kind of pivot to achieve profitability. Sounds like the emphasis is on profitable growth rather than meteoric growth. The market did itself no favors when it valued meteoric growth above all else. The combination of focused inventories, membership fees and free shipping thresholds make abundant sense. The model sounds very much like the thinking that is deeply rooted in Costco logic: Offer value on a focused assortment of best sellers–and execute superbly.
This article also reminds me of the horror I felt the first time I heard the term “endless aisle.” So many retailers have difficulty managing limited aisles. Endless aisle thinking would prove to be the undoing of many a retailer. Hats off to Thrive on their focus and discipline.
Thrive is onto something here. While we’ve seen a proliferation of SKUs over the last 10 years, most SKUs have no movement in a day and sometimes sit for much longer. As an example, the number of baby food SKUs has increased by 58 percent, coffee by 81 percent, and healthcare goods by 42 percent. Shoppers love discounts, but they hate stockouts and substitutions. I may not like a more narrow assortment, but I always like it when items I want are actually in stock.
Let’s not forget the importance of the membership fee and order minimums for Thrive. They are critical factors in making this work. Many members are one-and-done, or at least they’re not frequent shoppers. It’s their memberships that help pay the freight of those who shop frequently.
Thrive has focused on what products its customers want. This is a great example of SKU rationalization. This allows the retailer to concentrate its buying power on those items, increasing its return on inventory investment. Its model is also supported by subscription and shipping strategies. Thrive may never have the sales of its competitors but I’d rather have a profitable but smaller company than a larger unprofitable one.
Of course it does — lots of them in fact. Thrive has reduced its supply chain and inventory holding costs, focused (one assumes) on high velocity items, has rational membership and shipping fees, and – most importantly – understands that — contrary to what Cheapism says — price impression is more important than individual SKU price. I’ve done extremely extensive research on this over 20 years. with a database of over half a million respondents in nearly 20 countries across two decades we’ve found respondents overwhelming respond to pricing they see as “fair and honest” over “lowest cost” SKUs, so the phrase “comparatively low” hits the nail on the head. Create the right price impression and you don’t have to worry much about any one or two individual prices as long as you stay somewhere in the lowest quartile of overall market pricing.
Limiting assortment allows for controlling assortment which translates into savings for the company and more closely following demand. Pricing can also be managed with less overhead. Lastly, reducing choice is not always a bad thing for consumers. In today’s age of being plastered with choice, consumers will cherish the retailer that offers high quality products at stable, and yes even higher prices. For Thrive, this fits in nicely with their business model and how they want to be perceived in the market. As for competition, the model doesn’t have a large moat and it’s the execution that will highlight success or failure.
Pricing is somewhat important but most of the e-grocery community is already in the affluent sector. What matters here is positioning of shipping costs–a problem for a different day.
Limited assortment arrives at e-grocers. If it works for brick-and-mortar grocers, it can work here. There is definitely a customer for this format. If I am going to pay a $60 subscription fee, I am definitely going to use the service (especially now since we are all watching our money closely) because I feel it offers a positive value proposition. Let’s see where this goes in the future.
At the risk of going off track here, I’m surprised this hasn’t run into trademark issues: “Thrive” is the advertising slogan for Kaiser Permanente, and I would think this would cause confusion.
But now away from who they are – or aren’t – and back to what they do: low price, obviously , can be a selling point. But of course you have to actually have them. And you have to make money. This has always been the weak link in online grocery, and I don’t see that changing. So while I wish them well, it’s hard to see a startup having some advantage over older, larger and (likely) better funded competitors.
Fewer SKUs make sense for Thrive against other grocers in the organic and natural space. Their strictly e-commerce grocery business serves a smaller slice of all grocery shoppers who are either good planners, want snacks, or are searching for a deal. Thrive can deliver this.
For the majority of us grocery shoppers, studies show by midday, most don’t yet know what we are having for dinner tonight. So grocery store ubiquity will continue to serve the large audience with more items, at different price/quality levels and fresher foods.