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What’s Cooking? (Part 5) – Grocery Store Integration

May 13, 2011

Ever since the days of Kozmo.com and HomeGrocer, I’ve been fascinated by the idea of online grocery shopping.  Something just seems so convenient about the food I need showing up at my house, eliminating the need for wandering the aisles of the grocery store like a lost puppy.  Contrary to popular belief, I’m pretty sure the “professionals” can pick out better pears than I can too.  Everyone has always figured online grocery shopping would be the next huge thing, WebVan even managed to raise somewhere north of $900 million dollars in VC funding to build such an infrastructure, with nothing but pure speculation to back up their business plan.  Of course, what everyone thought would someday be the norm turned out to be a passing fad, and led to the spiraling death of many early dot-com giants.

My early prototypes for KitchenPC were based on this idea of allowing users to purchase groceries online.  The scenarios were perfect; users would plan out their meals, generate very accurate shopping lists complete with the exact amounts they needed to buy, and KitchenPC would “shop” for them utilizing various connected grocery vendors, figuring out what products to buy in what quantities automatically.  I even created a fake online grocery store called MikeMart with several hundred products.  The shopping algorithms involved were also somewhat interesting, and perhaps unique in this space.  For example, if the user needed 1.5 pounds of cheese, and the store sold cheese in half pound SKUs and 1 pound SKUs, what would be placed in the cart by default?  Three half-pound blocks of cheese would meet the exact requirements of the shopping list, however what if two one-pound blocks were cheaper per pound?  If the user kept changing the default “three half-pound blocks” to “two one-pound blocks”, I would notice this trend and flag the user as a “bulk shopper”, i.e. one who appreciates a good deal when they see it.  The next time, KitchenPC would find them the best deal on cheese per pound even if it meant buying more cheese than they need.

The revenue model around this idea was also completely revolutionary.  First, KitchenPC would be analogous in the online grocery business to what Expedia did for online flight booking.  I would not have to be bothered with the expense and logistics of the groceries themselves.  No warehouses, no refrigerated delivery trucks, and none of the other things that caused the downfall of such business ventures of yore.  Instead, I’d add value onto other businesses by taking on the meal planning and recipe aspect and letting grocers do what grocers do best.  In exchange, I would charge these online vendors a certain percentage of orders placed through my site.

The second revenue model based around this concept is similar to shelf placement in grocery stores.  Grocery stores are smart enough to place the most revenue generating items at eye-level on the shelves, even offering the spots to manufacturers who pay them.  There’s an entire industry along this subject.  I would be able to do the same on a virtual scale.  If a user needs cheese, the grocery store could promote their own brand of cheese through KitchenPC, and this brand would be the default choice in the cart.  The user could of course change this if they fancied another brand, but if the user completed the checkout with this “promoted” cheese, I would charge the sponsor a few cents.  This is already superior to banner ads and other traditional online marketing, since product manufacturers or grocery stores would be guaranteed that their marketing dollar had a positive return.  For example, Kraft could simply send me twenty-bucks and I’d hold it in an account.  Each time someone bought a Kraft product promoted on my site, I’d deduct a nickel from that amount.  There would be no set minimum or maximum, and when the balance reached zero I’d simply stop promoting that product.  Multiple promotions could be cycled randomly, or targeted to certain users based on an analysis of what types of products they tended to buy.  A wise man once said, “You’ll waste half your advertising budget but you won’t know which half.” – KitchenPC would beg to differ.

A third revenue model was based around data collection.  Every time you swipe your member rewards card at the grocery store, all you’re doing is feeding valuable trend data into their database.  If there’s a correlation between shoppers who buy product X and product Y, if you buy product X you might get a coupon for product Y.  Manufacturers pay a lot of money for these sorts of data.  The data I could collect would be about quantity.  If you walk into a grocery store today and buy 10 pounds of flour, they don’t know if you’re a professional baker and will use all this flour the next day, or if you’re just stocking up because it was on sale.  As KitchenPC has access to your meal plan, I would know exactly how much flour you needed and how much you actually purchased.  I could develop trend models around different incentives to get shoppers to buy more of a product than what they need.  These sorts of data could be sold to manufacturers who are trying to figure out price points and size SKUs for various products.  I could tell Kraft, “Hey Kraft, if you made a 3/4lb SKU of cheddar cheese at price x, I predict this number of people would buy it.”

So, I had all this working and it was pretty cool stuff.  I even considering going into the public beta with the MikeMart integration just to try to attract some potential partners.  However, after taking a more realistic look at the initial user survey I decided the feature must be cut.  The Polish designers were already at the upper end of my budget for web design, and porting that UI over would only add to the expense.  Plus, out of the 300+ people I surveyed, only around 30% of them had ever bought groceries online.  Out of that 30%, the majority of them had only tried it out once, or would purchase groceries online every few months for major events.  I only found 6 people (out of over 300) who said they purchased groceries online on a regular basis.  These sorts of data simply don’t justify a massive undertaking for online grocery store integration.  Plus, the revenue models just didn’t scale.  Everything I had planned revolved around the majority of users purchasing their groceries online, and I just didn’t see that happening; at least not right away.

Another huge deal breaker was the chicken and egg problem involving getting grocers to sign up.  From a technical point of view, websites had to implement a special web service that conformed to a certain WSDL to allow KitchenPC to search their inventory, transfer order information, look at delivery schedules, etc.  Rather than transferring a user to another site, I wanted to provide a seamless experience for placing orders all on KitchenPC.  Buying a ticket through Expedia does not require you to have an account on AlaskaAir.com, so a KitchenPC user would not need an account on Safeway or Amazon Fresh or any other store.  I could simply transfer all the order information directly and securely.  However, any major vendor of groceries was sure not going to talk to me unless I had hundreds of thousands of users and I’d probably need some serious VC connections to even get in the door.  At that point, I decided the best approach is to build a great meal planning product first, and then worry about shopping integration later on.  Well, I think that “later on” is worth looking at once again, and I’ve also come up with some changes to make this design far simpler; and also allow the chicken and egg to hatch paradoxically simultaneously.

Regarding the minority of Internet users who purchase groceries online, this may be a fact; however, even if that number is still only a few percent, this equates to millions of potential users who would like my site.  Marketed correctly and combined with other revenue sources, I think online grocery store integration could still be a viable piece of the revenue puzzle.  Plus, the type of person who wants to plan all their meals up front and efficiently use each ingredient overlaps well with the demographic that would want to buy groceries online.  They’re busy people and don’t make frequent last minute trips to the grocery store.  Imagine finding a week’s worth of meals for your family on Sunday, checking off the ones you like, and clicking a single button to get all the ingredients delivered to your house the next day.  Most busy heads of household would love this sort of feature!

Next, it’s exactly the kind of gimmicky feature that ends up making headlines.  No one has done this before, so really who cares if it works!  I’m sure it would be a CNet article or be mentioned in at least a few major food or parenting blogs.  The press alone could drive in a ton of new traffic, even if I only supported a few small mom and pop grocers in the Seattle area.

As for implementation, I have some new ideas up my sleeve.  After doing so much work with HTML crawling the last few weeks, I came up with a new paradigm for vendor interaction; simply allow order placement through grocery stores without their permission!  The plan would be to scrape their inventory weekly using a crawler and index this information locally, exactly as a search engine would do.  I would be able to simulate orders through HTTP directly with the vendor by passing in the user’s data.  In exchange, I would charge the user a dollar as a service fee for using KitchenPC.  Sure, the user could logon to the site directly and save a dollar, but I would expect most users to rather pay a buck than type in 30 or 40 ingredients one at a time when KitchenPC could match all the products automatically; especially when they’re already entering the credit card data anyway.

Stores could also elect to be “preferred vendors.”  A preferred vendor would show up in bold or be highlighted in some way.  A preferred vendor would pay that dollar themselves instead of the user.  Thus, a user could save a dollar by using a preferred vendor.  This would allow my site to integrate with a handful of grocery vendors right away, and then perhaps recruit some preferred vendors down the road especially if I were armed with data showing how much business I’ve been sending them.  Eventually, I’d be able to forge relationships with enough vendors to work out the web-service based interaction with the site and could abandon the hacky HTML scraping technique.

Coincidently, I ran into a “Customer Engagement Manager” at a entrepreneur meet-up I went to on Tuesday.  She works at a website called MyGofer.com, which specializes in shopping for people.  I don’t know much about the company yet, but they appear to be backed by Sears from the looks of things and they provide a service to send out shoppers for you to collect things you need.  They seem to collect their own pricing data on various grocery items so you can see how much you’re spending before you place your order.  After talking to her a bit about KitchenPC, she said she’d be more than willing to meet up for lunch one of these days to discuss more on the subject.  I’ve come across a few of these “personal shopper” businesses on the web recently, which leads me to believe it’s the right time to pursue this sort business venture.  Plus, most of the core code for these sorts of features on my site is already done and works quite well.

So when can you expect grocery store integration through KitchenPC?  Sadly, I must say not for a while but it’s something I’m definitely going to pursue.  I saved the last part of this blog series for somewhat of a “stretch goal” but I thought I’d share this with my readers none the less, at least to create a bit of buzz.  Who knows, perhaps the CEO of Safeway is reading and loves the idea.  I do think this vision really ties in with online meal planning, and I don’t think there’s another site out on the web that’s in a better position to really nail that goal than KitchenPC.  So, it remains a long term goal and definitely one I’m excited about.

I really appreciate everyone who read all five parts of this blog post!  Hopefully, you’re as excited as I am about the future of KitchenPC.  After taking a year off “work”, whether or not I can continue with KitchenPC full time much longer is up in the air, but at the very least it will remain a part time project of mine to work on as time allows.  There’s still such a huge amount of work left to do, but I think I have a much more clear “road map” now; and the site will only get better I promise!  Thanks for reading.

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From → Business, Technical

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