Web-only organic grocery retailer Thrive Market is leaning into private-label goods.

Jeremiah McElwee, Thrive Market senior vice president, merchandising and product development

The membership-only brand launched 165 Thrive-branded products last year and has already added 66 more private-label products this year, bringing its total number to 520 Thrive-branded products, says Jeremiah McElwee, senior vice president of merchandising and product development. While this is only 8.7% of the roughly 6,000 total products for sale on ThriveMarket.com, private-label goods account for 25% of its revenue. And Thrive isn’t stopping here. It plans to launch 200 private-label products in 2019 and hopes to have these products represent 30% of its business by the end of 2019, McElwee says.

The reason for Thrive’s bullishness on private label is straightforward: Private-label products enable Thrive  to supply a product of similar quality to the leading brand in the category, price it competitively and make a higher margin on its product.

While this is simple enough logic, launching a private-label product isn’t easy, which is why it has taken years for Thrive to get to this point, McElwee says.

How Thrive got started in private-label products

Thrive’s mantra is selling healthy and sustainable products. It also sells products that are specific to certain diets and allows shoppers to filter by those attributes, such as gluten free, paleo and vegan, among other attributes like fair trade certified, certified kosher, woman-owned business, sustainably farmed and more. Because the retailer knows the types of products that its shoppers search for and buy, when creating a private-label product, Thrive wants to ensure that its products also meet many of these standards.

Thrive launched its first private-label products in 2016. Initially, Thrive picked products that had the highest volume of sales because it knew there was a demand for it. Its first product was an ethically sourced, organic, fair trade coconut oil, which continues to sell well, McElwee says. Thrive also developed nuts and dried fruit early on, as those products are not heavily branded by a lot of players, and many shoppers already buy a non-branded version of them, he says.

When Thrive launches a product, it asks questions that seek to determine how ingredients are sourced, down to conditions on the farm and food safety practices. Thrive visits farms to do a “good old-fashioned eye test” to see if the suppliers’ practices are what they say they are, McElwee says.

Thrive also often asks suppliers to tweak their recipe ingredients to make the products healthier, McElwee says. For example, asking the supplier to use avocado oil in beauty products or to eliminate cane sugar in pasta sauces. Sourcing its product is the biggest challenges Thrive has with its private-label goods, he says.

Because of this extensive vetting process, launching a private-label brand takes time and is rarely without challenges, he says.

“We know it’s not going to happen fast,” McElwee says. “We are in it for the long haul. We are not just going to crank out products and fill our shelves.”

A typical, fast, no-problems launch takes about eight to 10 months, he says. But that’s not always the case as some projects are harder than others. “I’ve been trying to launch mac ‘n cheese for three years,” he says.

The retailer wants to launch a product that will meet the needs of many of its shoppers. And if it can create something that fits for a paleo, vegan and gluten-free diets, that’s the “holy grail,” he says. For macaroni and cheese, that means plant-based cheese that’s vegan and gluten-free pasta. Plus, it has to price the product to what shoppers are used to paying for it—which is often 99 cents a box. This means macaroni and cheese is “virtually impossible” to create, and Thrive hasn’t cracked the code on it yet, he says.

Thrive’s private-label products are not always priced lower than the category leader, as it is often using expensive ingredients in its products that it needs to factor into the cost. About 90% of the time, the Thrive-branded product is a comparable price or cheaper than the name-brand in the category, McElwee says. Similarly, not all of Thrive’s private-label products have a higher profit margin than the other products it sells, but that’s OK, he says. Thrive takes a long-term approach to its products and if it can create a better quality product, with a better story of how it sources its products, Thrive knows that it will eventually be able to scale it and make more profit on it in the future, he says.

Thrive develops product packaging for ecommerce

When Thrive designs the packaging for its private-label products, its chief objective is a package that can be easily shipped directly to a consumer’s house.

For example, beans are a low-priced product that are sold in a heavy can. For Thrive to ship beans direct to consumers in how they are traditionally packaged at a competitive price, it would lose money on that sale, McElwee says.

When Thrive first started out, it didn’t know if it could create its own products in these high-weight categories and be profitable. (Thrive is not currently profitable but has that as a goal for 2019, McElwee says.) Thrive conducted a long-term study of its customers who bought beans to see who they were, and if they were buying the beans because of the low price or if they were only buying beans one time and never again. Thrive found that shoppers who bought beans were actually very important to the retailer, as they had large average order values, tried different categories at a higher rate than a normal shopper and were some of its most valuable shoppers.

Those results drove Thrive to rethink its approach. Thrive found a bean supplier that could put its beans in pouches, which is now how it ships its Thrive-brand beans.

Challenges to private label

Thrive aims to sell a healthy balance of its own products and brands, McElwee says. Because the name brands often only have one or a few products in the category, those brands are better positioned than Thrive to focus and innovate within the category, he says.

When Thrive launches a product in a new category, sales of all products in that category grow, which means it is not cannibalizing sales from its wholesale brands, McElwee says.

Thrive receives mixed reaction from its wholesale brands when it launches its private-label product in that category. Some brands are skeptical and sometimes unhappy until they see that it does not negatively impact their business, McElwee says.

How Thrive launches a new private-label product

Because Thrive is never sure of when a product will be ready to launch, it does not do presales or tease a product launch.

When Thrive has the product ready to launch, it sends an email blast to its 5 million consumers on its list. It also has an in-house content team that will produce recipes using it, create videos and create ads for Instagram, Facebook and Pinterest.

The products can work as a customer acquisition tool as well, McElwee says. If a consumer comes to Thrive because she was enticed by one of its products, she might then discover more about its brand, such as its mission, or see how easy it is to shop for products for their diet.

“[Our products] are unique. You can’t get these products anywhere else, you can only get them with us,” he says.

Thrive is No. 208 in the Internet Retailer 2018 Top 500.