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06/22/2022

E-Commerce Report: Private Brands To Go

A slew of new private brand companies are testing the waters in the rapidly expanding grocery delivery marketplace.

The presence of private label products continues to grow with new house brands springing up from a variety of independent, digital-leaning companies in the food retailing and delivery space.

Philadelphia-based Gopuff, which operates through micro-fulfillment centers in more than 650 U.S. cities, continues to roll out new products under its “Basically” private brand line of bottled water, household essentials and snacks, which was introduced back in January.

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Misfits Market

Misfits Market, a direct-to-consumer online grocer, launched its first private label collection in March. Odds & Ends features coffee, dried fruits, nuts, snacks and more.

Prior to shutting down in March due to its Russian financial backing, Buyk, a New York City-based delivery startup, launched a range of private brand items last December that included ice cream, coffee, candy and nuts.

Even food companies not known for developing their own brands are expanding business models to gain a foothold in the private brand space. Online meal-kit provider Hello Fresh has added an online market (HelloFresh Market) for U.S. shoppers to purchase add-on private brand, branded pantry items and ready-to-heat foods. Imperfect Foods, the company that built a reputation for delivering misshapen fruits and vegetables at a low cost, has been working to transition from a regional produce-focused delivery service to a national full-service grocer, including the rollout of private label items.

Strength in the Overall Market
Industry experts attribute this ramping up of private brand activity in the e commerce sector to the strength of the private label market. According to recent research from Daymon, 89% of consumers trust private brands as much or more than national brands.

“As the rapid delivery category continues to expand, and competition in the space increases, developing a private brand will allow them to separate themselves from all retail competitors,” said Aimee Becker, senior vice president of Daymon.

Jumping into the e-commerce private brand space may have additional benefits over traditional retail private label, said Becker.

“Emerging e-commerce retailers have a clean slate within private brands, serving as an opportunity to be purposeful in the quality and perception of their offerings,” she said. “Starting a new private brand program allows e-commerce
retailers to create programs offering the highest quality across categories, while not sacrificing on price.”

Jim Wisner, president of Lake Forest, Ill.-based Wisner Marketing Group, said that companies such as Gopuff are poised to steal share from larger retailers, particularly in convenience categories like household supplies.

"The question is, are they taking share and volume principally from supermarkets, or are they taking it from gas station convenience stores? I don’t think we know the answer yet,” he said.

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Gopuff

Specific categories that are ripe for the picking by e-commerce private brands include high-frequency items such as pet food, baby and coffee, said Becker.

“Private brands in these categories typically become lost on the traditional shelf as there are many players or strong national brand loyalty,” she explained. “By emphasizing these private brand categories online, e-commerce retailers can utilize their digital real estate to promote their [products’] high quality, while creating loyal consumers who will return regularly specifically for these offerings.”

Meanwhile, the large grocery chains continue to invest more in private brand development, although Wisner does not believe that is a direct result of growing outside competition. Kroger’s recent push to promote its private brands through the use of digital coupons is more likely another sign of the overall health of the private label market, he noted.

Changing the Way We Shop for Food

The rise of e-commerce private label programs comes as the food industry tries to sort out the ever-evolving shopping behaviors of a post-pandemic world. Various research studies have pointed to a return to pre-pandemic levels of in-store grocery shopping, and recent data suggests a strong preference by online grocery shoppers for in-store and curbside pickup versus delivery and ship-to-home service.

A combined analysis of monthly data in 2021 by Brick Meets Click found that the pickup segment grew its share of grocery online sales last year to 45%, up five percentage points when compared to 2020, while delivery’s share remained relatively unchanged at 33% and ship-to-home’s share dropped five percentage points to 22%.

At the same time, the overall online food delivery market is exploding, thanks largely to the reconditioning of consumers to order restaurant meals to go from third-party services such as Grubhub, DoorDash and Uber Eats. Nearly three-quarters (73.4%) of U.S. consumers consider speed of service an important factor when ordering food delivery, according to Statista, which projects the e-commerce segment of the global online food delivery market to hit $965.8 million in 2024.

This has opened the door for companies like Gopuff in the so-called instant needs or ultra-fast delivery category to expand their private brand offerings while meeting the growing demand for faster service.

“Instacart’s current business model is a service, centered on shopping at local grocery stores for order fulfillment, which includes retailers’ private brands,” Becker said. “Unless they change their overall strategy to fulfill orders directly, entering into the private label space wouldn’t fit their current strategy.”

If Instacart does decide to entire the space, however, “it will be interesting to see how their dynamic with traditional retailers develops,” said Becker.