December 16, 2016, 3:42 PM

How Boxed is bringing bulk CPG products online

A conversation with Boxed Wholesale CEO Chieh Huang.

Lead Photo

We all hear so much about the 800-pound gorilla in the industry, which is Amazon and, most recently, Jet. But there are other important players to understand and potentially do business with, including Boxed, an online bulk goods retailer of everyday household essentials, which has raised a little under $150 million since launching 3 years ago.

In a transcript form the Profitero Podcast Series, Profitero’s SVP Strategy and Insights Keith Anderson speaks to Chieh Huang, co-founder and CEO of Boxed Wholesale.

Keith and Chieh discuss the economics behind the Boxed business model, where it fits in today’s ecosystem of increasingly diverse online models, the importance of mobile (Boxed first launched as mobile-only), as well as insight into how CPG brands can effectively partner with Boxed.

KA:  Do you mind giving folks the elevator pitch on Boxed?

CH: Boxed is the wholesale club, aka Sam’s Club or Costco, for a younger generation that doesn't have the physical means, aka a car, the time, or the patience, to access their local warehouse club. We've been in business about 3 years now. It's been a fun journey from me and the co-founder standing in a cold garage in central New Jersey to now, where we have six locations across the US, and have raised a little under 150 million dollars to date.

What you find in the industry is that a lot of folks in pure play feel like pure play is the end all, be all. I think a lot of folks with just brick and mortar with a very light omnichannel presence think that brick and mortar will be the place where retail will be in 50 years. I think both those folks are probably wrong and it's somewhere in the middle. Even though you have a car eventually in the future you might not have the time or the patience to go. In those instances Boxed would be a pretty good alternative.

KA: You and I were on stage at a Nielsen event together about six months ago. We were there with Jet and Instacart, and they’ve been some interesting developments in the market since then. I think what everybody is starting to acknowledge is that e-commerce for consumer package goods is going to happen. What would be helpful is to understand a little bit about where Boxed fits today, and potentially in the future, in this ecosystem of increasingly diverse online formats.

CH: I'm really glad that you brought that point up because everyone up until now has thought of pure play or thought of online as just being one model. You have to be “the everything store,” you have to have unlimited shelf. For the most part that has been a very successful model pioneered by Amazon, basically a sport that they invented. But as you see today with offline retail it would just be totally preposterous to think that there's only one winning formula for offline retail. As more and more dollars get spent online over the next 10, 20, 30 years we'll look back and think it was absolutely crazy to only think that one playbook won all of online retail. We're starting to transition into that phase where so much money is spent online that different models can succeed.

So, your question about where we fit in, I would say let's answer the question of what we are not. We are actually not “the everything store.” We're limited assortment, a very curated selection of items based on where you are across the country, that gets to you in generally two days or less. From that perspective you would think of us as another entrant in the wholesale club model. Which is generally true, we have large format only SKUs and we regionally select what items are in the "club".

Also, at the same time, we obviously deliver to you, we carry vastly different brands than what's available in an in-store club. We're evolving into a model in and of ourselves. In the future I would probably see Boxed as one of the entrants in the warehouse club space, but at the same time I would say we would be the most convenient warehouse club. That's where we would solidify our space in the ecosystem.

KA: One thing that I think is noticeably distinct is the membership fee. A lot of people have written and talked about the importance of membership fees and membership revenue. What role do you think the fee plays for an online club like Boxed?

CH: Whether it's us at Boxed or anyone, it's just another lever to pull when you're developing a model. On one hand, if you do one item per order, as most online retailers do, you actually need to offset that loss you're inevitably going to incur when you ship it across the country to someone's doorstep. You can recoup that loss via one of several ways.

You can go to the manufacturer and have them subsidize. I'm sure some manufacturers are listening to the show, they'll probably say they've gotten a few knocks on the door asking them to subsidize shipping costs on behalf of some of the retailers. The second part of that could be via membership fee.

Luckily because our model is completely different, because we are not “the everything store,” what we find is we've been able to generate the largest CPG-only order, considering we don't even carry fresh foods for the most of the country. Our average B2C ring is above a hundred dollars and 9.8 items per order.

When you find that you have a model like ours, where you're shipping 9.8 items per person, you can effectively amortize the shipping cost over those 9.8 items. So, it's not necessarily the case that you lose money on every box that you're shipping out. To date, membership fees have not played a role in our model. Could it in the future? Absolutely. Is it necessary to? No, not for our model. Because of the abnormally high ring and items per order.

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