Talking tech: Food sites look to ride Groupon wave
By MJ Deschamps | 31 August 2011
In 2010, Groupon turned down US$6bn takeover bid from Google
The concept of group buying has grabbed the headlines in recent months, with sites like Groupon and LivingSocial providing consumers the opportunity to benefit from discounts on a range of products. Now, in North America, food-specific sites have been launched, allowing shoppers to buy food in bulk. MJ Deschamps reports.
'Group buying' is the new Internet-based system for food manufacturers that allows them to sell direct to consumers, potentially bypassing retailers altogether.
Offering bargains appealing to post-recession frugality and tapping into the popularity of social media, group buying deal-of-the-day websites such as US-based Groupon and LivingSocial are becoming increasingly popular for all consumer goods and services in Europe and north America, and spawning niche imitators specialising in food and drink.
Group buying provides discounted gift certificates to subscribers through email that can be redeemed for a limited period of time. These good and services - often sold in bulk - can be obtained at specific locations, which may or may not be independent retailers, or ordered online, through the website of whichever company that is offering the deal.
Launched in March, Canada-based online grocery business FoodScrooge became the first company in North America to leverage group buying and bulk buying to allow consumers to purchase high-value food items at a low price. Each week, the website offers discounts of 40% to 80% off items straight from manufacturers such as meat, seafood and prepared meals that people would want to buy in bulk, says founder Tim Ray. The products are obtained from about a dozen suppliers, ranging from major Canadian consumer packaged foods company Maple Leaf Foods to small bison farms, with discounts offered because manufacturers have either overstocked inventory, or want to promote a specific product.
According to Ray, aside from obvious consumer benefits, FoodScrooge helps manufacturers develop new sales channels while expanding their customer base, avoiding bureaucracy imposed by traditional retailers.
"From the suppliers’ perspective, we’re a lot more agile and able to really react to market opportunities and sell things on a real time basis," he says. "When [suppliers] do business directly with a retailer, they have to get a SKU set up, for example, and there is a lot more red tape involved - if you need to get rid of some products, traditional retailers are not able to react quickly enough unless it's a product that's already on their shelves. We're really filling a niche for suppliers to be able to get rid of last minute inventory that retailers aren’t able to handle."
FoodScrooge works with independent (often small) retailers and other distribution businesses to help consumers obtain products. Consumers receive an order confirmation with the business name of the distribution partner and pick-up instructions and must take possession of their food in 15 days or it goes to charity. "We're trying to serve a function for smaller, independent retailers, who hopefully benefit from increased retail sales from increased traffic going into their stores to pick up deals," says Ray. And, he claims, it is to be working. "Our retailers have seen that 50% of people going to pick up items in their stores are buying additional groceries."
Riley Scott is one of the co-founders of Aisle50, a new US grocery group buying website similar to FoodScrooge that launched in this month – and gained 6,000 subscribers within its first four days. Aisle50's relationships with retailers, however, differ from FoodScrooge. Instead of having several distribution partners, Aisle50 has one exclusive retail partner - Lowe's Food Stores, which has supermarkets in North Carolina, South Carolina and Virginia. Aisle50 offers deals through the grocer's loyalty card and, when consumers purchase a deal online at Aisle50, the product is then loaded onto their Lowe's loyalty card. The customer then has a window of a few weeks to a few months - depending on the expiry date of the product - to obtain a product at their closest Lowe's supermarket.
Scott argues the big difference between having a deal offered through Aisle50 rather than directly through a retailer is how the brand is portrayed.
"Retailers take your product and put it on a website where it's amongst all the competitors' products, where it would only be seen by people who generally frequent the site, and are already regular coupon users," explains Scott. "If you offer a discount through Aisle50, though, we feature it on the site, send an email to subscribers about it - where it's the only product in the email - and bring high social media integration to it, where people can share the deal, with friends, and give us feedback."
Scott predicts that, in the next few years, group buying in general will become popular for even narrower niche markets. "Group buying [in the future] is going to really verticalise. At the moment, the generic group buying website is all things to all people, and the relevance to one individual is low on a day to day basis."
Tom Pirko, managing director of international food and beverage advisory firm Bevmark, agrees that group buying is catching the food industry's attention. However, he believes there will be some retailers will be concerned at how group buying could affect their sales.
"Some retailers are afraid that if [grocery group buying] catches fire, people will come in, load up on specials, and buy nothing else in the store," Pirko says. "If people get used so used to these mega discounts, there is a fear that they will just go from store to store for deals and retail margins will slip."
Group buying is only in its nascent stages across the Atlantic in Europe. Sarah Cordey, a spokesperson for the British Retail Consortium (BRC) believes, widespread food group buying will be slow to develop in the UK. "Our retailers offer a lot of special promotions through their stores, and we would therefore assume it would be quite difficult for any group buying organisation to really seriously undercut them sufficiently at the moment," she says.
Cordey argues the continued weak spending power of UK consumers could hinder the development of websites that offer the opportunity to buy food in bulk. "Household disposable income is really down, so it's quite difficult for people to find a chunk of money to spend upfront," she says.
Of course, with the US economy in the doldrums, shoppers there are also finding it tough but, with a more entrenched tradition of buying in bulk, the development of group buying websites for the food sector could gain traction there.
Companies: Maple Leaf Foods
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