With the growing importance of consumer data, pressure on margins, new consumption patterns, changes in the supply chain, there are a number of reasons manufacturers are interested in selling directly to consumers, INS CEO and founder Peter Fedchenkov told us.
But, until now, the technology to actually cut out the middle man (retailers), has been lacking.
“We started to think of a way to connect consumers to manufacturers and, with our interest in blockchain, cryptocurrencies and smart contracts, we realised these new technologies were the most viable way to do this.”
INS uses blockchain to secure data along its supply chain and sets up ‘smart contracts’ through which manufacturers can run bespoke loyalty programs and reward their customers in INS bitcoin tokens - a bit like air miles, Fedchenkov said.
A medium slice of a very big pie
There is a concentration of power within the global grocery market, predicted to reach a value of $8.5 trillion (€7.2tn) by 2020, that puts the ball firmly in the retailers court, said INS.
In the UK, for example, around 7,000 manufacturers serve 25 million households but just four retailers dominate 76% of the grocery market share, according to Consumers International. In other countries around the world, this averages at around 60% for the top five supermarkets.
This leads to unfair trading practices that negatively affect farmers and manufacturers and mean less choice and higher prices for consumers, said INS.
According to Deloitte and the American Marketing Association, 70% of manufacturers’ marketing costs is spent on campaigns aimed at wholesalers and retailers. The idea is that manufacturers can save money on the B2B trade marketing directed towards retailers, Fedchenkov said, and these savings will be passed onto consumers.
Starting with dry and packaged goods but ultimately aiming to move into chilled, frozen and fresh items such as milk and meat, INS predicts that products bought on its platform will be around 20 to 30% cheaper.
Complex technology, simple interface
The fact that INS is powered by complex technology won’t make it more complicated for the users, said Fedchenkov. After all, people pay for goods every single day using credit cards without understanding how they work.
“[The website and app] will look similar to traditional online shopping experiences, like Ocado or Amazon, with the exception that the items that consumers see will be listed directly by manufacturers and manufacturers will control pricing and assortment.”
Consumers will also be able to participate in loyalty schemes, earning and spending INS tokens, as well as providing feedback to manufacturers. This will give food-makers access to a wealth of consumer spending data that, until now, has been the preserve of retailers and their private label brands.
Once consumers order their groceries, these are dispatched from a central warehouse. INS will utilise manufacturers’ warehouses or transport fleets that are not in use and, in this way, the approach is similar to AirBnb or Uber, said Fedchenkov.
Blockchain is used to record the flow and state of goods, as they pass from manufacturers to third party logistic handlers to consumers, in a more cost effective and reliable way than the other standard industry method of databases.
Small brands could win big
Despite the big names that have already expressed an interest, INS is not just for giant multinationals. In terms of getting a food in the retail door, Fedchenkov said the platform could benefit small brands and start-ups the most.
“This [working with small suppliers or start-ups] is an important part of the idea,” Fedchenkov told FoodNavigator. “We got requests from small independent Brazilian coffee farmers, wheat farmers in Scotland, cereal manufacturers in Italy and smaller brands from Australia."
It’s very difficult for small, alternative brands to make themselves visible to consumers but these are the kind of products that people want to buy, Fedchenkov said.
Despite cutting out retailers, Fedchenkov said he is “more a friend of manufacturers than an enemy of supermarkets”.
The kind of meteoric rise experienced by Chobani – six years ago it was a completely unknown start-up, now it is the biggest Greek yoghurt brand in the US – will become more commonplace thanks to the visibility offered by services such as INS, he added.
It’s all still in the early stages – the bitcoin token sale is scheduled to launch next month (4 December) – but as a company, INS is moving fast. Fedchenkov and his team developed the concept in Q2 of 2017 and by Q3 some of the world’s biggest food-makers from Unilever and Mars to FrieslandCampina are interested.
Creating the platform will begin in a few months and the official launch is scheduled for Q4 2018. The service will first be available in Moscow, where Fedchenkov already has a strong network of contacts as the founder of Russian e-commerce platform Instamart (launched in 2013, its predicted revenue for 2018 is $25 million), and in Amsterdam, thanks to the strategic and logistical importance of the city. By 2019, however, INS hopes to be rolling out in major cities around the world.