18 Jan 2018 --- Through the INS Ecosystem, founder and CEO, Peter Fedchenkov, believes that shopping will be significantly more affordable. “For smaller brands, we believe that the INS Ecosystem could bring goods to consumer doorsteps for up to 30 percent cheaper than current prices. For established manufacturers we can help consumers save 5-15 percent compared to what they would spend in traditional stores – this is a big cut for groceries,” he tells FoodIngredientsFirst in a recent interview. Part 1 of the interview is available to read here.
Talking about the benefits to companies joining the ecosystem, Fedchenkov says it’s actually “very strange” how little manufacturers currently know about their consumers. Everyday grocery retailers, especially online, use the insights to come up with better private labels that compete with numerous manufacturers directly.
“Consumer packaged goods manufacturers on average spend 24 percent of their budget on marketing – mostly on TV and trade channel promotions, further highlighting that there is no personalization or targeting involved with these old school tools and techniques. The use of direct-to-consumer loyalty programs through our INS tokens would be a great leap forward,” he says.
Click to EnlargeThe best way to understand the INS token is to think of it as frequent flyer miles. Like frequent flyer miles, the tokens will be given out by manufacturers to reward consumers for their loyalty and once consumers have collected enough tokens, they can use them for buying groceries, much like you can buy flights in frequent flyer miles programs.
“A simple smart contract may look like this: If buyer X buys three bottles of soda, reward the buyer with two tokens – although, in practice, it will probably state: 'reward the buyer with the number of tokens equivalent to 20 percent of the purchase price.' The beauty of the smart contract is that it’s fully automated and therefore very efficient, so as soon as the buyer fulfills the requirements, the tokens are rewarded, no back-office needed, and no one who has to count stamps etc.”
The flexibility of smart contracts makes it possible for manufacturers to create very advanced loyalty programs, tailored to each individual. Manufacturers can feature combinations of products and specifically target consumers that most likely need to re-purchase a consumable.
“Over time I expect that non-competing brands will team-up for even more valuable cross-brand promotions, the only limitation that I foresee is the creativity of the marketing departments,” says Fedchenkov.
“Coupling this direct-to-consumer loyalty program with data, would enable manufacturers to increase marketing, ROI, and ultimately margins (or decrease prices). Just imagine how manufacturers can improve their propositions when they are based on massive real-time feedback from consumers, compared to just the few focus groups on which they base product development these days.”
In addition, it will be much easier for them to launch pilots projects, gather feedback, improve, and test again, without all the hassle of negotiating with retailers.
“We truly hope that the money that is saved by going directly to consumers will result in higher quality products, so at the end of the day, we all benefit,” states Fedchenkov.
Initial reaction to the ecosystem
According to Fedchenkov, both consumers and producers like the idea of getting away from retailer domination.
“We’ve received confirmed interest from both industry leaders and smaller independent players. The latter is particularly attracted by the 'plug & play' aspect of our ecosystem: a consumer-facing front-end, fulfillment, and last mile delivery is all ready to go. It enables them to reach their consumers in an easier, less costly and a more productive and engaging way.”
“What’s more, we’ve also received overwhelmingly positive response from consumers worldwide. Our community in Telegram (a social chat application) has now almost 20,000 members, which is the third-largest among all blockchain companies that have ever run a crowd sale. These members have contributed (together with a few larger supporters) roughly US$40 million to our fundraising.”
“The “word of mouth” effect is critical for a successful mass market consumer business, and our advocates even put their money where their mouth is – supporting us in moving full steam ahead with the development starting in Q1 of 2018.”
According to INS, direct-to-consumer is on the agenda of the top management of the world’s largest consumer packaged goods companies these days, and industry support has been overwhelming so far. Also, smaller independent players from the UK, Netherlands, Italy, US, Brazil, and Australia have demonstrated a strong interest towards INS.
A number of important memoranda of understanding are confidential since there are sensitivities with regard to traditional retail channels, however, Fedchenkov names a few.
“2 Sisters Storteboom, Aviko, Capebe, Borjomi, Zijerveld Food (part of Frieslandcampina), Reckitt Benckiser, Bolton Group (Dubro). We are still working towards global agreements, so these letters of intent were discussed with relevant offices in the UK, Netherlands and Russia.”
“We have a few companies in a more advanced stage which will be announced in time. We are now actively working towards signing up grocery manufacturers for our upcoming pilot in Amsterdam and Moscow that is due in the second half of 2018.”
Maturation of blockchain technology will shape & drive the future
Decentralized platforms, based on blockchain technology and smart contracts are here to stay, declares Fedchenkov in his summing up. Over the next three to five years, he believes they will become a mainstream alternative for marketplaces that currently are driven by a central “digital” model.
Looking at the grocery industry, the direct-to-consumer model is the logical next step, after “regular” online marketplaces such as Amazon or Alibaba, he says.
“They became successful because they removed middleman entities that were mostly brick & mortar operations. What is often overlooked, is that in effect they did not remove the middleman altogether, but replaced the brick & mortar middleman with a new digital middleman.”
“A far superior type of middleman, built around automated central software, but still a broker in between the supply and demand side, taking their markup. For a long time, there wasn’t any other technology that could more efficiently handle the relationship between the supply and demand sides than this automated central software.”
“However, over the past few years, blockchain technology has matured and it turns out that it is the ideal technology to create a new generation of marketplaces where suppliers and consumers can meet each other directly without the need of a central middleman.”
And, in terms of the expectations for INS, Fedchenkov believes the direct-to-consumer model will become a valuable established way of shopping (selling, interacting, and buying), next to the existing on- and offline channels.
“In general, you can distinguish two types of shopping habits: last minute shopping, or daily and (bi)weekly bulk grocery shopping; many people engage in both types. The last-minute daily shopping will predominantly be done at the small corner supermarket, mainly due to convenience, which consumers constantly trade for speed or price.”
“Then you have the weekly grocery shopping, where people take their car, which more often than not feels like a burden. It takes a one-hour minimum, you are carrying heavy bags, and after that, you still have to go somewhere specific for your organic, artisan, or specialty products because they are not available in major supermarkets.”
“We see more and more that consumers are replacing the latter way of shopping by ordering their groceries online. However, the 'experiential' shopping with the discovery of fresh produce, gourmet food, and new brands would still largely happen offline for years to come.”
“We are not an enemy of retailers or wholesalers, as at the end of the day we just want to help manufacturers and consumers. If manufacturers sell just 0.5 percent of their revenue through the INS Ecosystem, the data and insights would still benefit their performance in other channels, and in turn, help retailers too.”
By Gaynor Selby