November, 1999

From the Editor

Priceline Deli

Priceline.com, the service promoted in ads by William Shatner of Star Trek fame that allows individuals to name their own price on airline tickets, hotel rooms and much else, now is moving into the grocery store. The company has launched WebHouse Club, which offers brand name products for consumers to buy online but pick up at their local grocery store.

The program is simple. Consumers go online and place bids for grocery items. There are a series of suggested bids, complete with likelihood of success (great, good, fair or poor) and also an option for consumers to bid some other price. Initially the service is free to consumers; however, after 90 days, Priceline intends to ask consumers to pay a $3 fee in any month that they make a purchase.

At the time of bidding, the consumer gives a credit card and, if the bid is accepted, the credit card is charged. The consumer then goes to the store and picks up the items. There are no refunds, even if the store offers a cheaper price. Right now the service is available in the New York metro area and a national rollout is anticipated.

As is implied by the WebHouse Club name, the idea is that consumers can get warehouse-club prices on regular supermarket items that can be picked up in the convenient local market.

At the moment, the service isn’t affecting deli very much, but it could. The service right now has a bias toward pre-packaged items. That is because of the way it has been sold to supermarkets and the nature of the way discounts are financed.

Service items, including service deli, aren’t included because the pitch to get supermarkets to cooperate is that the service will focus on low-profit, commodity-type items that warehouse clubs are strong in. Then, once drawn into the store to pick up their bargains, consumers will buy all those high profit service, perishable and specialty items that the supermarkets do well on.

Well, it is a theory. It may also prove true that people who care enough about discounts to go through the bidding process on a can of tuna fish are not really buyers of high profit items.

To the extent that WebHouse is selling deli items, it is mostly the prepackaged items usually sold in dairy or meat. So you can bid on turkey cold cuts in packages from Butterball, Healthy Choice or Hillshire Farm. Ham cold cuts are sold in packages from Healthy Choice, Hillshire Farm or Oscar Mayer. Cold cut variety packs are offered from Butterball, Healthy Choice, Hillshire Farm, Louis Rich and Oscar Mayer. Cheese blocks are from Cabot, Cracker Barrel and Land O’Lakes; hot dogs are from Ball Park, Kahn’s, Nathan’s and Oscar Mayer.

The consumer has to choose at least two acceptable brands. At the store, the consumer can pick anything in the category – as they say online: “You can get any flavor of ham cold cuts you want at the store.”

The consumer comes in the store with his WebHouse Club card, which is scanned. The scanning ensures the consumer will get the price of his accepted bids – higher or lower than the price at the store.

The discounts are made up by the manufacturer, in effect, a kind of highly targeted couponing. Though theoretically, such bidding could occur on service deli items, manufacturers might be nervous about ensuring that their own product is what actually winds up in the shopping cart.

This kind of program is precisely what appeals to MBA brand managers at manufacturing organizations. Costs of the promotion can be tracked exactly and traced to specific sales. The higher sales volume can be credited to the promotion as marginal sales, and thus the promotion will seem very profitable.

Yet, long-term, participating in this type of program is probably a disaster for brand development. After all, what does this program teach other than that all the products are the same and the only variable is price? Of course, the reason the program can work at all is that, all too often, price is the only variable.

In some cases, the program will fail. Nathan’s hot dogs taste different than, say, Oscar Mayer. Nathan’s would really need to be in a different category – Jewish-style franks or something of that sort.

But, if consumers can be equally satisfied with a package of ham from Hillshire Farm or Oscar Mayer, then this program is telling us something pitiful about many top brands: they no longer matter and the relevant distinction is not between the different brand names themselves, but between no-name items and brand name items.

Of course, one day the same may be seen as applying to the retail store itself. Participating in this program is transforming a merchant into a drayage company. Suddenly the retailer’s merchandising skill, customer service and even its pricing philosophy won’t really matter. It is location, location, location.

This scenario may not happen right away, but it will happen inevitably as product line expands. And how long before someone sets up a dedicated shop that doesn’t sell at all, doesn’t even take case, but only fulfills orders pre-booked on the internet, through WebHouse Club or some other service that springs up?

What WebHouse is about is the supremacy of price. The question is whether there are retailers and manufacturers who are prepared to say they aren’t willing to play that game.  DB