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Check Out the Supermarket

Five years ago, online shopping was something you did from a home or office PC. You didn’t expect to find the future of e-commerce in the aisles of your neighborhood supermarket. Indeed, dot-com upstarts such as Netgrocer, Peapod, and Webvan—all of which delivered goods ordered online to people’s doors—aimed to put a serious hurt on their physical-store counterparts, not to work with them.

Now, a different approach to supermarket e-commerce is emerging. The most successful retailer in the United Kingdom is the Tesco supermarket chain. An estimated one of every eight pounds spent in Britain on retail, whether in stores or online, goes to Tesco, says Reynolds.

In contrast with companies such as the now defunct Webvan, which supplied ­online orders from central warehouses, Tesco services Internet orders in its stores. This arrangement is extremely profitable, because it builds on spare capacity within the store network, and orders are filled by store staff during quiet periods. Whether customers purchase online or in stores, the data about what they buy is linked to Tesco’s loyalty card, so the company “knows who you are irrespective of the channel you come in on,” Reynolds says. If you log onto the website through a home computer or PDA, it lists your favorite or recently purchased items—whether you bought them in a store or online.

In this manner, Tesco has amassed a mountain of data about its customers, which it uses in various ways. Regular-mail statements to all loyalty card customers include quasi-personalized coupons tailored to their buying habits. Some coupons might provide discounts on products a customer has recently purchased. Others offer discounts enticing customers to try new items Tesco thinks they might like. In addition, Tesco puts out five editions of a quarterly hard-copy “magazine,” each of them tailored to a broad audience segment: students; young adults without dependents; young families with children; people age 40 to 60; and those over 60. ­Finally, the retailer offers a number of further segmentations, or clubs—World of Wine, Baby and Toddler, and so on—that customers choose to join, and which enable even more precise delivery of promotional offers.

A farther-out approach—bringing e-commerce to the supermarket shopping cart—is being tested by Stop and Shop of Quincy, MA, which operates 350 supermarkets in the Northeast. Dubbed Shopping Buddy, the technology consists of a wireless computer and data management system developed by IBM in partnership with the supermarket chain and software maker Cuesol, also of Quincy.

The paperback-book-sized device, introduced early last year at three stores near Boston, is installed in shopping cart handles. To use it, a shopper scans in his loyalty card; a simple graphical interface then appears, displaying such features as sale items and a customer favorites list. On the favorites list are the names of the things the shopper buys most frequently, whether he buys them in the store or has them delivered to his house by Peapod—which, in a neat post-bubble twist, Stop and Shop’s parent company now owns. The device creates a map of the store and displays a suggested route. Infrared beacons on the ceiling track the cart’s location, so the device can automatically alert the customer if any of his favorite items are on sale in the aisle he is currently browsing. The interface also lets the shopper wirelessly order cold cuts from the deli; an alert sounds when they are ready. Finally, an attached imaging scanner lets the shopper scan items as he puts them in the cart; as the cart fills, a running total is displayed. When it comes time for checkout, the cashier scans the shopper’s loyalty card, and all of the items in the cart are listed on the register screen. This saves time for both the shopper and the cashier.

Stop and Shop is expanding the program to 20 more stores in Massachusetts and Connecticut, says marketing director Peg Merzbacher. The company is also working on new features—one of which will allow customers to create online shopping lists that will automatically appear on the Shopping Buddy when they arrive at a store. Merzbacher says integrating physical-store presence with Peapod helps both businesses by adding convenience and building loyalty. “Hardly anybody converts to total online shopping,” she says. “They go back and forth, [and] when you get people to use both channels, they spend more.” IBM is also pushing the limits of the Shopping Buddy tech­nology, hoping to better tailor advertisements and promotions, and generally improve the shopping experience. Rakesh Mohan, senior manager of IBM Research’s Industry Solutions group, says there’s no reason such a device can’t suggest a wine to go with a meal or provide dietary guidance by reporting an item’s fat or carbohydrate content. It could even sound a warning if a product that a shopper scanned contained ingredients to which he or she was allergic.

This technology could do for in-store advertising what Google did for online advertising. As search technology has ­improved, Web-based advertising has evolved to include paid contextual advertisements linked to search terms. If, for instance, you use Google to search for digital cameras, paid advertisements from camera makers will probably appear on the right-hand side of the Google page. Similarly, Mohan says, when a shopper is in a supermarket’s laundry detergent section, that’s the time for detergent ads to appear on the shopping cart screen. “It’s really bringing the Google-type activities into the physical environment,” says Mohan.

But is that something we really want? Mohan thinks it is. He argues that these new ads will not feel intrusive, because they will be directly related to what the customer is doing at any given moment. What’s more, they have the potential to be far more effective than online ads, because they can be tailored to the person’s buying history. And best of all, Mohan adds, they simply appear on-screen without the shopper’s ever having to click a mouse. Nor is their application limited to supermarkets; IBM believes such services will be attractive to any retailer.

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