“Be ready for more disruption on the wholesale rollercoaster”

Be ready for more disruption on the wholesale rollercoaster. Blockchain start-up INS Ecosystem is promising major consumer packaged goods (CPG) companies that it will reinvent the grocery industry, with a soft launch in the last quarter of this year, possibly in the UK.

INS is already listed on Binance, the growing cryptocurrency exchange, following a sale valued at around US$41.5m (£29.1m) in December.

The company was founded by Peter Fedchenkov, who teaches retail at the Stockholm School of Economics, and Dmitry Zhulin, who has a venture capital background. Their platform aims to connect CPG companies directly to consumers, offering the latter savings of up to 30%. Reckitt Benckiser is among those CPG companies that have allowed the start-up to use its name to gain traction.

In its pitch document, the INS team says in bold letters that despite its tremendous growth potential, the grocery market has two large, interrelated problems: abuse by grocery retailers and ineffective trade promotions.

Using the UK as a model, it highlights how four retailers serve as a “slim conduit” for 7,000 manufacturers to sell their products to 25m households, which demonstrates how the “existence of retailer abuse in the grocery industry has not only been allowed to develop but also thrived.”

Their second argument, which fits in with the cost-cutting playbook of most large CPG companies, is about the 17% of manufacturers’ sales consumed by spend on trade promotions.

“Each year, over $50bn on trade promotions never reaches the consumer,” they write. “Unfairness in today’s promotion-laden atmosphere goes hand in hand with the rising costs of promotions and the inefficiencies they produce. Around 95% of manufacturers admit that trade promotions inefficiency is an extremely important issue.”

Bypass ‘the middlemen’

INS’s idea is to create an ecosystem that bypasses retailers and wholesalers, offering “a more personalised and transparent grocery shopping experience at lower prices”.

Shoppers are tired, they say, of retailers pushing goods on to them to maximise their profits.

The company also wants to give shoppers unimpeded access to independent and local manufacturers – including farmers – who do not fit retailer supply chain or procurement terms and cannot get their goods on retail shelves.

The INS ecosystem has four participants: the manufacturer, the INS platform, the consumer and third-party fulfilment providers – the last of which creates a possible opportunity for an efficient distributor.

INS takes 1% to run the marketplace, advertising products, operating promotions and loyalty campaigns, getting consumer feedback, taking orders and overseeing fulfilment.

INS says that as its platform is built using blockchain technology, it will have greater bandwidth to allow for the high load expected from millions of users making dozens of orders a year.

Underpinned by smart contracts based on standardised templates, the payment process will use a tokenised blockchain ledger to speed payment.

Is this any greater a threat than Amazon? The founders have an answer to this, too. Amazon and Ebay came to life because they replaced bricks and mortar stores with automated software accessible over the internet.

But Amazon and Ebay do not remove the middlemen – they replace them, their centralised software handling the relationship between supply and demand. However, INS says that a decentralised blockchain will work better than this, which will disrupt Amazon and Ebay. It is not a matter of ‘if’ but ‘when’ the new structure takes over, INS says.

With the sums of money at stake, wholesalers can be sure more disruption is on the way.