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Why Brandless Failed Where Aldi Succeeded

Ashwin Ramasamy
Ashwin Ramasamy
Feb 18, 2020
Min Read

Why did Brandless Shut Down?

Brandless had its thesis right. People don’t care about big brands as much as they care about ingredients. They love a good price. If you give people what they could trust at the price they can afford, there is a big company to be built. Right? I’d be seduced by this argument too. It’s easy to write an “I told you so!” after the fact. In this blog post, we make an outside-in comparison of what Brandless was with an iconic retailer’s successful playbook. We may (I may) not know how things unravelled but that has never stopped me from shouting out my naïveté.

Setting the Stage: In the late 2000s as I was facing the brunt of the cold winter in Stuttgart all jet-lagged and hungry, I lost my way and stumbled upon an ALDI store. The big minimalistic fonts and typeface was reassuring wading through a sea of Germanic names that I didn’t understand. My German lessons came to a screeching halt when a fellow student asked the beautiful german teacher how to say “I love you” in German and parroted the lines to her right after. The classes stopped abruptly. But my love for ALDI went uninterrupted, well beyond the logo. The big aisles with minimum fuss and small space felt like home. Unlike the Kmart or the Meijer I used to shop from, ALDI was compact. Stuff tasted good or better and the prices were cheaper. I never thought about them until I ran into one of their senior executives at the fancy food show in San Francisco recently. So why exactly did Brandless shut down? As mentioned previously, it had its thesis right. People don’t care about big brands as much as they care about ingredients. They love a good price. If you give people what they could trust at the price they can afford, there is a big company to be built. It turns out, that big company is ALDI. But ALDI’s secret sauce is so good that Walmart considers it a threat but Brandless has closed with not even a whimper. Why? I have a point of view and an armchair at home.

What Aldi Did Right: ALDI’s secret sauce is staying retail and dabbling with eCommerce as an afterthought. Brandless’ proposition of good products at a great price works if they a sustainable cost. Being an eCommerce company, the CAC is a variable that grows with sales. At $3 per product and a CAC that grows along with the volume of sales, the model looks very different and inferior to ALDI’s. For the whole of 2019, as Brandless’ traffic was unravelling, the paid acquisition channels continued to bring about 40% of the shoppers. I don’t buy the argument that being brandless was a mistake. Brandless is the brand and it was very clever of them. If there is something they got right, it was the branding. What undid them is the cost of goods sold. It’s beyond me as to why they didn’t go premium with pricing and focused on lesser categories. But they had a thesis to follow and retracting it after raising a few hundred million dollars wouldn’t have been easier. ALDI’s focus on small footprint retail with minimum assortment and store brands is a marvel of a business model. The cost of customer acquisition is apportioned over the many footfalls that happen through the days. The cost remains relatively flat. The store brands improve profitability and supply chain efficiency. ALDI now focuses on premium products with natural ingredients at an affordable price for the middle-income group. Brandless’ thesis is ALDI’s playbook. But ALDI mastered the cost structure that is needed to make the model work. Brandless kicked the problem down the road with SoftBank’s money. One can pontificate but I would think it’s not all black and white. Brandless would have expected a certain organic customer acquisition momentum and less pressure from the investors for profitability. Tides change fast. Were they trying to play the game of “last person standing”, with SoftBank money? Maybe! PS: I am planning to be in LA/SF before Shoptalk in March. Know anyone I should be meeting?

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Freedom from non-Commerce databases.
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Slips poor jokes & gets away with a poker face. Carries a no BS attitude at getting things done. First to arrive at the office, Ashwin’s energy does not ebb through the day. Ashwin is one of the co-founders and he sets the tone for marketing, sales, design & culture.
Slips poor jokes & gets away with a poker face. Carries a no BS attitude at getting things done. First to arrive at the office, Ashwin’s energy does not ebb through the day. Ashwin is one of the co-founders and he sets the tone for marketing, sales, design & culture.
hm.com
HQ Location: Beaverton, Oregon, United States Of America, 97005
hm.com, operated by H & M Hennes & Mauritz AB, is an internationally-focused online store that generates eCommerce net sales primarily in Germany as well as in the United States and the United Kingdom. With regards to the product range, hm.com achieves the greatest part of its eCommerce net sales in the “Fashion” category.
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Arts and Entertainment, Business and Consumer Services, Business and Industrial, Consumer Electronics, Health and Fitness
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Slips poor jokes & gets away with a poker face. Carries a no BS attitude at getting things done. First to arrive at the office, Ashwin’s energy does not ebb through the day. Ashwin is one of the co-founders and he sets the tone for marketing, sales, design & culture.
Slips poor jokes & gets away with a poker face. Carries a no BS attitude at getting things done. First to arrive at the office, Ashwin’s energy does not ebb through the day. Ashwin is one of the co-founders and he sets the tone for marketing, sales, design & culture.
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