Photo: Gopuff
Will private labels help rapid delivery firms reach profitability?
Two rapid delivery start-ups, Gopuff and Buyk, have announced plans to expand into private label in moves that promise to provide a competitive point of difference and support a road to profitability.
Gopuff, the largest rapid delivery startup with a focus on CPG essentials, is launching its “Basically,” label with bottled water, to be followed by cleaning products, batteries, paper products, cutlery and food storage. The company will introduce snacks in coming weeks and other products in coming months.
Jessica Glendenning, a Target veteran who most recently served as head merchant at Brandless, is guiding private label development.
Daniel Folkman, Gopuff’s SVP of business, said, “After over eight years of delivering instant needs, we truly understand what our loyal customers look for in everyday essentials — insights that have enabled us to create product lines designed specifically for them.”
Buyk, a grocery-focused platform that operates in Chicago and New York, is rolling out coffee, ice cream and candy under its own brand with plans for private label to account for 40 percent of its total sales.
“We are confident that this ever-expanding private label line-up will quickly become a fan favorite,” said James Walker, Buyk’s CEO.
The ultrafast-delivery space (most services promise 15-minutes delivery or less) continues to attract major venture capital. Typically, the start-ups use dark locations to drive pick and pack efficiencies and save money versus pulling goods from stores. Owning their own inventory promises to support margins. Most charge delivery fees under $2 with no service fees.
Profitability, however, has so far been elusive due in part to hyper competition that deters moves to raise fees. In just New York City, Gopuff and Buyk compete alongside Getir, Jokr, Fridge No More and Gorillas.
The push toward private label may create some differentiation to avoid competing mostly on price and speed. Private labels also typically offer bigger margins.
A Wall Street Journal article noted, however, that rapid delivery’s profitability going forward will likely be challenged by the limited inventory typically available in dark locations, the ultimate requirement for extensive infrastructure to support expansion and competition from larger delivery players. DoorDash entered the rapid delivery channel in 2020, and DashMarts and Instacart reportedly plan to test ultrafast delivery early this year.
- Gopuff Expands to Private Label with the Launch of “Basically,” – Gopuff/Business Wire
- Ultrafast Grocer Buyk Rolls Out Private Label, Signs Exclusive Partnership with Pat Lafrieda – Buyk/Business Wire
- Gopuff, the instant grocery startup, is raising $1.5B in a convertible note at up to a $40B valuation, ahead of going public as soon as mid-2022 – TechCrunch
- Fast Grocery Delivery Can’t Make Fast Money – The Wall Street Journal
- Inside Gopuff’s Ambitious and Costly Bid to Dominate European Instant Delivery – The Information
- Gopuff will now sell its own line of products, starting with bottled water – The Philadelphia Inquirer
- How disruptive is the rapid delivery model to grocery? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Will private label offerings become a key strategy for shoring up differentiation and profitability among rapid delivery firms? Will adding private label make delivery services more of a threat to the local retailer?
Poll
Loading …BrainTrust
Dr. Stephen Needel
Managing Partner, Advanced Simulations
Andrew Blatherwick
Chairman Emeritus, Relex Solutions
I just don’t see this making a difference to rapid delivery losses. The economics of delivery remain firmly set against them. There is some remote possibility that one of the firms will make this into a pivot and they develop a brand that gets picked up in retail. But I also think that’s unlikely.
Even if we assume their private label products deliver quality and value that’s comparable to name-brand items, profitability for ultrafast delivery companies will be almost entirely gated by their ability to raise their fees. Two-dollar deliveries with no service charges? It never was and never will be sustainable, regardless of the assortments.
Rapid delivery is just not sustainable and the customer will pay for it in the end — no matter how well the margins are for private brand.
Completely agree David.
I love private brand investment of the product and assortments are aligned with what the customer wants/needs. But once we start chipping away at the profitability of private brand with the price of last mile, there may be no point in the effort it takes to launch a relevant and distinctive assortment.
Thanks, Liza! The entire ultrafast delivery model reminds me of the old adage, “Well, sure we lose a nickel on every order, but we make it up in volume!” I am frankly not surprised by all the deep-pocketed investors looking for the next unicorn, but all that investment is only leading to more competition — which drives down prices. Warning: major shakeout (and shareholder losses) looming, IMO….
I doubt many of those deep pocket investors read RetailWire.
Fair point, Gene! ;^)
The first rule of logistics is, “you can shift the functions, you can shift the costs, but in the end, someone’s gotta pay.” They can chase the higher margin of private label, but now they have to buy in large lots and warehouse it somewhere, instead of accessing other people’s inventory for “free” at a lower margin. It can only work in the largest of metro areas with the least-constricted transportation networks, so basically, what, Phoenix? Not scalable up to NYC/LA/Chicago, and not intense enough for Duluth or Des Moines.
I don’t see how this will balance out. This is like a hamster wheel — at which point will I be profitable if I don’t get an influx of customers and have to raise delivery fees to be in the business?
Absolutely not a winning strategy and no threat to local retailers. Private Label business is not for the faint of heart and anyone short of Trader Joe’s wanting to make it 40% of their business should go back to marketing classes.
Very few organizations do private label well and consumer trust and interest are major barriers. Can they be overcome? Sure they can. Is it easy? Not in the least. And anyone foolish enough to look at COVID based data on PL growth will quickly mislead themselves. A lot of PL purchases were based on product availability, not endearing adoption.
Private label is going to heat up. No doubt about it. It’s the best way for consumers to fight inflation. BUT … you don’t just wave a magic wand and get “cred” for a private label. Walmart learned that the hard way a few years back.
So, in order to have a chance for success, the companies will have to do some creative promotions to get people to try their stuff. I still remember Publix Great Recession promotion. Every week they’d pick 6 items and say “Buy the national brand, get a private label of the same free.” So you could get cereal, and the Publix brand with it one week, ice cream the next … etc. etc. People need to build confidence in the brand.
Then, yes, I think there’s an opportunity.
Delivery firms offer interesting new twists to retail and CPG manufacturers, and although the P&L model is extremely thin with margins, I could absolutely see them drive a wedge into specific product categories that will excite consumers and a select set of their private labels could really take flight. Given the perfect storm of inflation, supply chain woes and consumer confidence trending downward, I think you’ll see tremendous experimentation by all of the delivery firms in 2022 with a huge round of consolidation in 2023. Buckle up for a wild ride.
“Oh, we’ll just add private label to our mix to boost margins.” Like that’s easy. Like they will just instantly swoop market share away from the competition. As if that’s not already an extremely competitive arena. Profitability in the delivery game will ultimately be about competitive fees and execution. If they can add to their competitive edge and margins with some private label products, great, but let’s not pretend it will be easy … said every retailer who has tried.
Yes, private labels distinguish rapid delivery players with exclusive products that can inspire loyalty. If these firms protect product quality and offer innovative items, they can gain market share. As inflation rises, private labels could offer economic essentials.
Yes, rapid delivery product lines pose a threat to local retailers by tempting shoppers to skip the store altogether. Brand loyalty has been in decline and consumers are more open-minded now about trying new products.
Overall, private labels from rapid delivery players give consumers more convenience and choice.
You got to be willing to try in order to buy. If the quality of the product combined with price is attractive, I can see it fostering continuity of purchase. As shared, finding that right balance of speed to delivery, product choice, price and reasonable fees is a tough combination. The items need to be unique, special enough that they foster preference — if the ice cream is as good as Ben & Jerry’s: winner. If closer to Dean’s: pack it up and go home.
When is the last time anyone found a PL ice cream as good as Häagen-Dazs?
Gene, so true. I went with B&J vs. super premium. Today, in Chicago, if anyone is paying attention as a shopper, a 1/2 gallon of Breyer’s ice cream is $6.50. That is stupid expensive when if you have any price recall it could have gone for 2 for $6 a year plus ago. Small pack ice cream made with real high quality cream and popular taste ingredients — Heath, Oreo, Butterfinger type flavors — can win and generate a following.
Delivery to home of unique items that match health preferences — now you are talking. Low sodium? Low added sugar? Carve out segments that would appreciate that type of specifics in the shopping list, plus home delivery and a solid price/value relationship. At Jewel here in Chicago, for whatever reason the buyer (Albertsons) thinks one 1/2 gallon brand that is low sugar in one flavor — vanilla satisfies their customer base. Nope, not at all and if you ask them to add more and perhaps cut back on slow moving brands in the frozen aisle, forget about it.
Private label or not, this is a lousy business model. The quick delivery companies lack critical mass in al almost every aspect of the business.
The 15-minute delivery model almost insures that the delivery will be small. The cost of delivery versus the size of the ticket must be extraordinary. If they want to equal the technology alone to meet their needs versus anyone in the delivery business, again versus the size of the ticket must be extraordinary. The same goes for infrastructure.
And, how about consumer behavior? When does a person need 15-minute delivery and for what type of item? Will they like the PL so much that they will uniquely order it, while purchasing the rest of their basket from more complete grocers?
This is a solution with no significant problem to solve.
Private Label is a tried and true strategy for driving differentiation and customer loyalty. As long as the products match well with brands offer value — meaning quality and price. Private label products will make these brands more compelling and while may not help them grow market share per se, it will help keep the customers they get when their customers realize they can get great products at a good price, delivered to their door. Sounds very positive to me. That loyalty is going to be critical to their long term viability, because their next step will be to raise prices to move to profitability. Then we’ll see the value prop of private label for these brands put to the test.
Private label may be able to help cut the losses of the rapid delivery companies. Making them profitable is another matter. These companies are fueled by cash by VCs and the investor community, but will they ever be able to make money or will the whole sector crash and burn? Private label will not on its own solve that issue.
Investors get so excited about this new world that has seen growth during the pandemic and people staying at home rather than going out? We’ll have to see if this is something that can pass the test of time. In the past, we have seen dotcom bubbles burst and it is quite possible that this will be just another example. Private label is a very valuable tool in positioning your brand, enabling great value merchandise and building brand loyalty, but these companies are known for speed and not those qualities.
This is actually an interesting play, when the Top 2 global private label food retailers (80% of assortment — Trader Joes and Aldi) have decided that delivery is not an important part of their business models. If either or both were to pivot, both of these startups would be doomed.
At the end of the day, rapid delivery needs two things — buyers that are in a rush to get products, and products staged awfully close to those buyers to meet that 15 min delivery. That precludes any non-urban location since you need sufficient population density. But the larger issue here is transaction size. You expect that when someone needs a product in 15 min or less, it’s unlikely to be a large basket size. You likely need 2 or 3 items.
So, the question becomes — how likely are you to want to buy a private label, and one you haven’t used before, if it means getting it in 15 min or less. I am not sure the number of customers that fit this profile is large enough to generate enough volume for these rapid delivery businesses to scale profitably even with private label product helping them to keep the right product categories in stock. Ultimately, what do these companies become? Do they evolve into their own CPG brand that just happens to deliver quickly in urban areas? It’s more likely the business model will have to pivot in some way.
Well why not? I mean, what is there in merely making stuff? (Yes: if I knew which was the “sarcasm font” I’d be using it.)
They’re likely ROFL — perhaps literally — in Cincinnati, and the other HQs where billions of dollars are allocated each year to product R&D and billions more for marketing.
Private label has always provided an option for value at retail. It can also contribute to the bottom line in a faster way than branded products, but a strong set of systems and processes are required for any business to be profitable.
Due to rising competition in the domain, being profitable while providing such ultra-fast delivery is nothing short of an Achilles heel. Offering private-label items can help become more profitable to a certain extent. Evidently, many marketplaces are already leveraging customer insights to launch their own private label, such as Amazon Basics.
For the loyal customers of rapid-delivery firms, many items on their marketplace (including their own private label) are a mere commodity to customers. It’s the delivery experience’s speed and convenience that distinguish them from the crowd.
And, in terms of being a threat to local retailers, there is some risk of losing customers. However, oftentimes, instant grocery shopping is accompanied by the need to go for a walk in the fresh air. Some experiences are irreplaceable and physical retail is one of them.