Dawn of the online icebox

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The brave new world of food marketing might begin with the humble refrigerator.

Using technology to reorder groceries already is being explored--on the trade front by food manufacturers to refill grocery shelves, and on the consumer front by online home-delivery services. And now a new twist is possible in consumers' kitchens with an "online" refrigerator.

The concept model from Frigidaire comes complete with a bar-code scanner, with which consumers can reorder a fresh bottle of salad dressing, ketchup or other products by scanning their used-up container across the door. It picks up the UPC and automatically reorders a fresh supply.

While it seems simple enough, the refrigerator--and other innovations such as online grocery ordering services--may actually pose a world of complications for package-goods marketing.


"What you have . . . for the first time is an interactive channel that allows very low-cost, two-way communication with your consumers, enabling a very targeted message based on what they've purchased in the past and may purchase in the future," said Brian Crockett, associate partner with Andersen Consulting, which directed a 1997 study by the Consumer Direct Cooperative, made up of retail and package goods heavyweights including Ahold USA, Coca-Cola Co., Kraft Foods, Kroger Co. and Procter & Gamble Co.

"It's now a whole new world of promotional techniques which is going to be data driven and data-analysis driven."

Automatic replenishment of grocery products could have a profound effect on marketing, said Frank Britt, VP-marketing and merchandising for Streamline, a Consumer Direct retailer that takes orders via the Web, "because it's the ultimate loyalty program for a package-goods company."


As its popularity grows, this kind of consumer reordering will spark more intense competition on an old front between rival package-goods brands. Experts believe marketers will vie to become part of tight inventories of online marketers in the same way they jockey for shelf space at retail.

It also might open up more incremental purchase opportunities. The Andersen survey found 69% of participants stating they definitely or probably would use a system that makes suggestions about products to purchase, Mr. Crockett said.

It's the category leaders that tend to be big winners in home-replenishment systems, Mr. Crockett said. Second- and third-tier brands, along with impulse items like candy, stand to lose.

He said that Consumer Direct retailer Peapod's recent move to stop filling orders from Jewel Food Stores in Chicago and instead handle orders from its own warehouse resulted in more than a 50% cut in inventory. Peapod's warehouse stocks only the 12,000 items that account for more than 90% of sales, compared to the 30,000 to 40,000 items found in a Jewel store.


In addition to having to compete fiercely to find shelf space in "electronic" warehouses, once there package-goods marketers will need to find new ways to reach consumers at home before their supplies run out.

"I think [automatic replenishment] is a substantial opportunity for people who have a business model that enables it," said Mr. Britt, whose company makes weekly unattended deliveries to refrigerated home lockboxes in the Boston area, for which consumers pay $30 a month. Privately held Streamline doesn't disclose sales, but it has one of the longest track records in automatic replenishment, operating since 1993.

Streamline has two levels of automatic replenishment. One is a "personal shopping list," common among online grocery retailers, which gives consumers a chance to quickly place orders from a list of frequently purchased items. The other is a "don't run out" list that automatically reorders products at specified intervals for customers.

"Manufacturers need to belly up to the bar and give recommendations that have integrity regarding what replenishment cycles are," Mr. Britt said. "We are starting to provide, on a sample basis to the consumer, messages like `Did you know that you are buying razors every seven weeks from Streamline, and perhaps you'd like to put [razors] on the "Don't run out" list.' "


There is room for marketers who think out of the box to make the most of those opportunities, the executive added.

Streamline, for example, operates a research initiative in which more than a dozen consumer products companies already participate; the effort lets marketers study consumer behavior in consumer direct channels, including automatic replenishment issues, Mr. Britt said.

He declined to name the companies, but it's believed that Gillette Co., Kraft Foods, Procter & Gamble Co. and Sara Lee Corp. are among them.

Automatic reordering via the fridge is only one of several incarnations of the concept under development in the U.S. and U.K.

Two U.S. retailers are launching pilot projects that provide scanners and free home delivery to top customers identified through frequent shopper programs, said Clay Calhoun, program manager for interactive retailing at ICL Retail Systems Division, which makes the online touchscreen and scanner in the Frigidaire refrigerator.

He declined to identify them.


Mr. Crockett said that in another U.K. pilot project, Safeway is providing 200 consumers with handheld personal organizers from Symbol Technologies, which can be used to create personal shopping lists. By using frequent shopper data, the device can suggest that consumers purchase products based on past purchase patterns.

Such loyalty programs could even go so far as annual deals on such staple items as soft drinks, Mr. Britt said.

"I think you'll see manufacturer-to-consumer contracts mediated by thoughtful consumer-direct providers," he said.

Not everyone, however, is girding for a sea change.

Though automatic replenishment may concern manufacturers five years from now, it's still well beyond the planning horizon for most marketers, said Jon Kramer, president of J. Brown/LMC Group, Chicago, an ad agency that specializes in co-marketing programs.

"Package-goods manufacturers or grocers should be worried about how they're going to change their stores and marketing to deal with what's going on today," he said.

Bill Pearce, brand manager for Procter & Gamble Co.'s Tampax, acknowledged that while his brand is a natural for automatic replenishment, he hasn't made any plans for it yet.

"It's something that's intriguing, especially for brands that are leaders in their categories," he said. "We have more right to [consider automatic replenishment] than some of the other brands in the segment."

Copyright March 1999, Crain Communications Inc.

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