Blockchain benefits (Part 1): Partners could bypass retailers and wholesalers entirely, says INS founder

16 Jan 2018

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16 Jan 2018 --- INS Ecosystem, the platform that enables consumers to buy groceries directly from manufacturers at lower prices with convenience, has received great interest from some of the world’s largest food manufacturers. Aviko, Dubro, Zijerveld (acquired by FrieslandCampina in 2013), Bake Five, 2 Sisters Storteboom, Gulden Krakeling, Henri to name a few have already signed non-binding memorandums, plus a whole host of other partnerships in the pipeline considering to joining the ecosystem.

Major manufacturers are looking to the blockchain to cut grocery costs and partners could ultimately use the technology behind bitcoin to bypass retailers and wholesalers entirely.

INS founder and CEO and former founder of Instamart, the largest venture-backed online grocery delivery operator in Russia, Peter Fedchenkov, speaks with FoodIngredientsFirst about the game-changing INS Platform and the potential for disruption in retail.

What are the driving factors behind the creation of INS?
Very little has changed in the grocery retail industry over the last 50 years, yet consumer behavior is entirely different, explains Fedchenkov, as the number of consumers shopping and ordering their groceries online has risen dramatically.

“Millennials and Generation Z, who will no doubt be the backbone of consumption for decades to come, are now entering 'the buying age.' With little patience for a lack of choice and a desire for flexibility, they are looking for instant, direct communication with brands, and feel passionate about supporting alternative, smaller players,” he tells FoodIngredientsFirst.

“The problem is exacerbated by the fact that grocery retailers have an extremely dominant position in the flow of goods between manufacturers and consumers. In many developed countries, such as the Netherlands, a small handful of grocery retailers have a market share of 70-90 percent. This allows them to determine what gets on the shelf and at what price, in effect giving them full control over thousands of manufacturers and millions of consumers.”

As a result of this, Fedchenkov says, consumers are left with products that retailers have chosen for them, optimized for maximum shelf profits, and they may not necessarily be the best products available.

Retailers use consumer insights to devise better private label products and replace traditional manufacturers entirely, as has been the case with Amazon’s launch of its Amazon Basics private label.

Both manufacturers and consumers are frustrated with the current retail experience, claims Fedchenkov.

“Retailers have successfully ring-fenced consumers from manufacturers, capitalizing on both sides. According to a study commissioned by the United Nations, today’s grocery supply chain setup leads to one-third of items produced for consumption being spoiled or wasted.”

“At the end of the day, it is consumers who have to pay for all the costs and inefficiencies. INS Ecosystem is giving both parties a way to interact directly through a decentralized platform based on blockchain technology, that brings benefits to both sides.”

What are those benefits?
On the manufacturing side, producers get valuable feedback and consumer data as well as being able to reward their customers directly, while consumers could enjoy lower prices (partly through direct-to-consumer loyalty programs) and wider assortment, including goods from smaller artisanal producers and local farmers to major manufacturers and big-name brands.

“When people think about blockchain, they make the connection with Bitcoin, the digital currency that usually is associated with people who gained or lost millions, steep increases in value, and its use as payment for ransomware,” continues Fedchenkov.

“However, the usefulness of the technology behind the bitcoin, the blockchain, is recognized by respected companies across industries.”

He cites IBM working with Walmart, Nestle and other large food producers and retailers to develop a blockchain solution to handle food safety, as an example.

“Similar technology is currently being developed by the Switzerland-based Ambrosus, the blockchain-based ecosystem for the supply chain, that INS Ecosystem has recently partnered with to make grocery supply chain safer.”

“Last April, Dutch NGO Fairfood started a blockchain pilot in cooperation with Unilever, FrieslandCampina, and Mars to increase the transparency in coconut trade with the objective to facilitate a better income for coconut producers in Indonesia.”

Fedchenkov explains how grocery retail is at a high-volume, in a low margin industry. Goods change hands multiple times - from manufacturers to wholesalers to retailers with numerous logistics providers in-between. Each party has to maintain its own database and back office to manage these operations, he says, which is the extremely costly result of each company first implementing their own systems before trying to connect all these independent systems together.

“Today, if you take a step back and attempt to redesign this slow sequential system from scratch, it makes much more sense to have one source of information on both the state and flow of goods which connects and contributes in real-time.”

“The blockchain is the ideal technology to be this one source of information. The public-private nature of blockchain records means that each party can make data visible to others, reducing time delays, lowering costs, and human errors, as well as automating inventory control and streamlining fulfillment processes.”

“The use of blockchain will decrease costs and help break the barrier for manufacturers to sell directly by enabling third-party fulfillment providers to connect to the technology and increase the utilization rate of their current warehouse and delivery fleet assets.”

What’s in it for consumers?
“There is no need for consumers to understand blockchain, or cryptocurrencies to shop on the INS Ecosystem,” states Fedchenkov.

He says the shopping experience will be similar to what the customers are already accustomed to when they shop through online retailers – the big difference that consumers will see is that items will be listed directly by manufacturers and at manufacturer prices.

Next to the brands they know, consumers will also be able to choose from a wide variety of local or national producers, with the option of purchasing eggs from a neighboring farmer and meat from their local butcher.

“In a nutshell, consumers will no longer have to search extensively online or offline to find the products they like, all delivered at their doorstep, with convenience,” he says.

“The other big difference will be that shoppers will have a two-way street relationship with the brands they love. This immediate access is especially important to millennials that live with the real-time and instant gratification of the Facebook and Instagram era. The last thing these consumers want is to see their selections limited by brick-and-mortar stores.”

The second part of this interview is available here.

By Gaynor Selby