Boxed says its private brand program is at 15% penetration.
In a leafy suburb about 15 miles outside of New York City, there’s a roundabout near where the Garden State Parkway meets Interstate 78. Down the street, a nearly 145,000-square-foot building emblazoned with the word “Boxed” in blue sits on a hill, towering above residential homes and commercial buildings.
If you’ve never heard of Boxed.com, you might drive right past the property, oblivious to the fact that the warehouse is home to one of the most efficient and advanced private brand retail operations in the world.
On a recent Thursday, the New York City-based company’s Union, N.J., fulfillment center was a whirlwind of activity, with workers loading trucks full of private brand toilet paper and sparkling water destined for homes across the country.
Since its founding in 2013, Boxed, which sells bulk private-branded and branded groceries online without charging a membership fee, has grown into a $600 million company by creating a new pathway for the future of grocery retail. At a time when established food retailers are struggling to figure out what consumers want 10 years from now or even today, Boxed has seemingly cracked the code with its customized warehouse technology and nimble digital prowess that has attracted the attention not just of consumers but also of retailers.
“We always thought it was a race — could technology folks like us figure out retail before retail figures out technology?” said Boxed CEO Chieh Huang, who created and started running the company out of his parents’ garage in suburban New Jersey. “We’re running our own race. There’s a lot of folks out there trying to be Amazon. If we try to run the race like them, you are just competing for fourth, fifth or sixth place. And that’s not where we want to be.”
Boxed has made such a big splash in the industry that retailers such as Seattle-based Amazon and Cincinnati-based The Kroger Co. tried to acquire it last year; Kroger reportedly made a $400 million bid, according to Bloomberg, that failed. But while Boxed owes much of its growth to its technological chops and e-commerce expertise, its most impressive feat lies in creating a private brand strategy tailor-made for millennials and Generation Z.
TRUE BRAND STRATEGY
Six years after its founding, what sets Boxed apart today from the Costcos and the Sam’s Clubs is its private brand value proposition rooted in innovation and technology. Boxed has managed to successfully yet quietly create a private brand in its Prince & Spring line of bulk products that speaks to younger consumers — all available at the click of an app button, with no membership fee and with free two-day shipping on all orders over $49.
The company’s private label strategy, or True Brand Strategy, has four parts: product development, design, marketing and promotions. And the man behind an attractive assortment of private-branded emoji-shaped fruit snacks, organic coconut oil and other products is Boxed Senior Vice President of Private Brands Jeffrey Gamsey.
“I think a lot of the folks that I’ve talked to that have been in the private label business a lot longer than I have are very intrigued at the new approach that we’ve been taking in incorporating Prince & Spring,” Gamsey said in an interview at the Boxed warehouse in Union, N.J.
Gamsey, an attorney by training and gamer at heart (as is CEO Huang), joined the company five years ago as general counsel and director of business development. He practiced corporate law for Boxed while laying the groundwork for Prince & Spring, which is named after streets near the company’s first headquarters in New York City.
“Because we built Prince & Spring from scratch, without any legacy processes learned from other retailers, we had a tremendous advantage,” Gamsey says. “We could build our processes to work for our business. We had a very ambitious goal of trying to do private label better than it had ever been done before.”
Gamsey says Boxed set about creating its private label program by looking at a lot of retailers with the strongest private brands, including Issaquah, Wash.-based Costco Wholesale and Monrovia, Calif.-based Trader Joe’s.
“We wanted to build something that could become a defining part of why customers choose to shop at Boxed,” Gamsey says. “We rejected the me-too, look-alike approach. We rejected the value brand approach. We felt like our customers would appreciate higher quality products still sold at great value. So we looked at Costco’s Kirkland Signature as the leading private label in the club channel and we felt like we could do better.”
Gamsey says Boxed’s Prince & Spring line is similar to Kirkland Signature in terms of quality and value, but the similarities end at packaging design and other innovative attributes. Design does seem to be one of Prince & Spring’s strengths: The brand has won more than 13 awards for package design in private label (Vertex and Graphic Design USA). Gamsey says package design is instrumental in creating a lasting impression on private label customers.
“When we first launched Prince & Spring we were actually mobile only. So we thought through the design and how it would appear on our app, and we needed designs that worked at very small scale,” he says.
The result of that work is part of Boxed’s True Brand Strategy, “the goal of which is to do product development so cohesively together with the design and marketing and promoting of items so that Prince & Spring products all have their own names, their own identities and their own personalities. They still fit within the Prince & Spring portfolio but they are unique enough that they still can compete against brands on shelf,” Gamsey says. “We always say that our goal is to create products that we and our customers can be proud to display in our homes. And there’s a lot of things that go into that quality.”
An example of the company’s True Brand Strategy is its launch of Prince & Spring Stellar Seltzer in April. The four-SKU line of naturally flavored, zero-calorie sparkling waters has become the company’s best-selling product in the crowded $558 million private label sparkling water category, which grew 9% last year according to Information Resources Inc.
Gamsey says Boxed intends to stick to just one marquee private brand: Prince & Spring (launched in 2015). He says having a single brand and putting all of the focus and attention into building that brand has worked wonders so far. The retailer currently has 100 Prince & Spring SKUs (or about 5% of the retailer’s overall SKUs), and about 15% of the company’s sales come from its Prince & Spring products. Four of the five top-selling products on Boxed.com are Prince & Spring products.
The Prince & Spring assortment runs the gamut from toilet paper to garbage bags to trail mix. Boxed’s Prince & Spring toilet paper has won the Good Housekeeping Seal of Approval since 2017. “We’ve got a bunch of products in the pipeline, including our first private brand pet product,” Gamsey says. Prince & Spring products in development include dog treats, puppy pads, more flavors of seltzer water, organic granola bars, organic brown rice crispy treats, spices and personal care products.
“We pay a lot of attention to ingredients,” Gamsey says. “We use the free-from lists from Kroger’s Simple Truth store brand, Brandless and Whole Foods Market, and we run our entire ingredient list against those lists to highlight any potentially problematic ingredients. And then we research them and determine if it’s something that we want to have in our products. We have a lot of non-GMO products. We have a lot of organic products. We are the first private label in the world that we know of to be at market having eliminated palm oil from our entire line.”
Boxed says it wants to offer more fresh food to its customers because those items encourage loyalty and sales traffic. The company offers a service called Boxed Express that delivers items such as produce, eggs, milk and other perishables to shoppers in five markets: Atlanta, Dallas, New Jersey, the New York/New Jersey metro area and Boston. Sales to office buildings and other businesses, which make up between 20% and 30% of Boxed’s revenue, Huang said, are another growth opportunity.
Boxed announced in May that it will partner with Lidl to offer online delivery at two stores. The six-month pilot will include the full assortment of Lidl products, including fresh produce, snacks and beverages. Customers who live near each store can visit Boxed.com to browse Lidl products and get same-day delivery.
Boxed is also growing its brand penetration by spending millions of dollars on search engine marketing, social media and TV. Boxed is aggressively focused on making Prince & Spring the first grocery private brand in which social media plays a pivotal role in marketing. The company recently launched the brand’s first Instagram account. Gamsey says the company plans to roll out more Prince & Spring-specific digital marketing initiatives.
“The tech team is always coming up with new ways to engage with customers. We survey them. We’ve been working on a Prince & Spring brand page that will help with storytelling, help discoverability,” he says.
Another part of the company’s branding strategy, especially when it comes to attracting younger consumers, involves social responsibility marketing: The company discounts the sales tax amount from the list price on items that are subject to the “pink tax,” and has made price cuts on women’s products where the price is shown to be greater than the male equivalent. Of course, this move would seem to appeal to the target shopper at Boxed.
The average shopper on Boxed.com is a woman with children between the ages of 25 and 45. Most Boxed customers don’t live in cities, Gamsey says. They live in suburban and rural areas where the closest Costco or Sam’s Club can be 20 miles or more away. The average Boxed customer spends about $100 on around 10 items per order. That allows the company to keep costs low by splitting shipping costs over a wide range of products, instead of just a few. Another way Boxed keeps costs low is by offering a smaller, highly curated assortment. Gamsey says the company creates touchpoints that cater to customers’ desires. One of the most innovative and customer-centric programs at Boxed is its sampling program: Boxed has found a way to replicate the sampling experience found at most club retailers.
“We know that samples are something that customers truly love about the bricks-and-mortar club experience, and so we thought, how can we bring this online?” Gamsey says. “So we created what we call a Global Sampling Program.”
Every time customers check out on Boxed.com, they have an assortment of as many as seven different sample-size items they can choose to try for free. “Our policy is that there is always at least one Prince & Spring item in the samples to choose from. Occasionally we’ll have two or three Prince & Spring items,” Gamsey says.
In terms of merchandising Prince & Spring online, Gamsey says Boxed experiments with adjacencies. For example, putting Prince & Spring paper towels right next to Bounty on the paper products page.
“We look at, what is the penetration between those two items or in that category if the products are adjacent, or if the products are not adjacent? We do very little messaging on price. We feel like in some ways that it’s hard to talk about value and savings without cheapening the brand, and we’re very much trying to build Prince & Spring as a very premium brand,” he says.
Boxed’s core competency of innovation also extends to human capital. At Boxed, the organizational structure of the private brand team is separate from the branded buying team. “Our decisions are made fairly independently from each other and in the history of the company, I don’t think I’ve ever heard of a CPG coming to us and saying, ‘Oh we’re not happy with what you’re doing in private label in this category,’ ” Gamsey says.
THE AUTOMATED FUTURE
Back at the warehouse in Union, N.J., Rick Zumpano, Boxed’s vice president of distribution, takes me on a tour of stacks, robots and conveyor belts. Zumpano used to run distribution centers for Lowe’s and Family Dollar before Boxed asked him to help launch and operate three warehouses — in Dallas, Las Vegas and Union, N.J. — that allow the company to deliver everything from bulk paper products to fresh oranges.
The New Jersey warehouse is fully automated, with nearly three miles of conveyor belts, driverless carts and a special camera that takes a “selfie” of each order and e-mails it to the customer. Even the machine that seals each box uses tape with the name “Prince & Spring” on it. Boxed has built all of this technology from the ground up, including order management systems, mobile technology, software that monitors and lists product expiration dates, and all of the warehouse robots.
Boxed has a hardware division that builds and manufactures all the robotics that operate the fulfillment centers. By using high-tech software and machine learning, Zumpano says, Boxed can provide an online platform for retailers or suppliers, especially smaller companies that do not have a lot of resources. But right now, Zumpano says he’s focused on getting Boxed ramped up to six distribution centers across the United States.
“What we’re doing now is measuring where the customer growth the greatest,” Zumpano says. “Is it in the Midwest? I envision not only a fourth distribution center but possibly one more in the Southeast, which would get us to five, and maybe eventually have a sixth.”
Of course, the digitally advanced wholesaler that started in a garage faces all of the challenges that traditional retailers face: changing consumer food preferences, last-mile limitations, and creating an omnichannel platform to serve customers with anything, anytime, anywhere. These challenges may loom over Boxed, but Gamsey says there’s plenty of room for companies like his. He doesn’t see impediments to growth because Boxed occupies a niche in large part due to its innovative private label program.
“The way that I think about it is, the brand is closing in on four years old and we’re at 15% penetration. It took Costco 25 years to get to 25% penetration of Kirkland Signature, and they got private label right with their initial strategy,” Gamsey says. “And so I think that based on the rate of growth in our private brand, we can eclipse 25% a lot quicker than Costco or other retailers have.”