Ultrafast Delivery Aggregators See Private-Label Brands as Path to Profitability

If margins in the grocery industry are low, and margins for grocery delivery are unforgiving, then companies that deliver within minutes are essentially walking a tightrope — if it were not for venture capital funding, ultrafast delivery might not be possible.

On Tuesday (Jan. 18), both 15-minute grocery delivery company Buyk and on-demand food and convenience delivery service Gopuff announced the launch of new private-label lines.

Read more: Ultrafast Grocer Buyk Launches Private Label

See also: Delivery Platform Gopuff Launches Private Label

The former aims to grow its private label to make up as much as 40% of its product selection by the end of the year. The move makes sense, given the greater profitability of these products. By shifting the product mix to its own line, Buyk is making its business more viable in the long term.

“We are thrilled to be the first among U.S. ultrafast grocers to launch private-label goods,” Buyk CEO James Walker said in a statement. “We are confident that this ever-expanding private-label line-up will quickly become a fan favorite.”

To Walker’s point, private label can be a loyalty play in addition to serving profit margins. If the products are of a high enough quality, grocers can build affinity with their customers, keeping them coming back even as new, ultrafast grocers enter the market every month.

Research from PYMNTS’ new study “Decoding Consumer Loyalty: The Customer Loyalty To Merchants Survey 2022,” created in collaboration with Toshiba Global Commerce Solutions, showed that 35% of grocery shoppers are more loyal to the products they buy than they are to the merchants from which they shop.

Read more: 35% of Consumers Will Switch Grocers, Pharmacies for Better Digital Features

Gopuff is taking a similar tack, aiming to offer products that differentiate the delivery service and its offerings. The brand’s new line, “Basically,” spans food and convenience categories and was developed based on data about consumer demand.

“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,” Gopuff Senior Vice President of Business Daniel Folkman said in a statement. “Basically, is … another example of how we are uniquely positioned to show up for our customers.”

These insights are a unique advantage that digital merchants have in developing their private-label lines — with every transaction occurring through their mobile apps or websites, these services can gain a deeper understanding of how consumers behave from the moment they log on until they check out and close the app or site.

As Mitch Madoff, senior vice president of Private Label and Supply Chain at digitally-native convenience retailer Foxtrot and former vice president of Exclusive Brands at Whole Foods Market, explained it in an interview with PYMNTS last spring, “When I was at Whole Foods … it was a large company, and so we might not have been as nimble or as quick to jump on trends or lead trends. Actually, here at Foxtrot, I’m finding it to be the opposite; we’re able to move super-fast [and to] create the trends in a lot of areas… We’re really out leading, more tip of the spear.”

See more: Foxtrot Gets Whole Foods Exec to Build Private-Label Brand Arsenal