Don’t get too excited — the Organic Batter Blaster shown above, on sale for a mere $2.49, has already sold out. But fear not: more grocery-centric deals are on the way.
Today Y Combinator alum Aisle50, which is best described as a sort of ‘Groupon for groceries’, is announcing that it’s closed a $2.6 million funding round. The round was led by August Capital, with participation from Ron Conway, Yuri Milner, and Chicago-based New World Ventures. August Capital’s David Hornick will be joining the company’s board.
We’ve written about plenty of Groupon clones and ‘Groupon for X’ ideas before now. And while many of them have fallen by the wayside, Aisle50 has a few tricks up its sleeve that help differentiate it from the myriad clones. And, more importantly: it’s getting traction with some key brands and chains in the industry, and its early stats look solid.
As with Groupon, once you sign up, you’ll receive regular emails about food items being sold at a major discount, which you can buy at a nearby merchant. And, just like Groupon, it’s based in Chicago, which is a hotbed for the grocery industry.
But there are some key differences. For one, these deals are being offered by the item’s manufacturer, rather than the retailer. And the way customers actually go about redeeming their coupons is different as well. Here’s how the process works (I’ll use a recent deal Aisle50 had featuring Chobani yogurts as an example):
First, customers receive an email about the latest deal in their area — in this case, a large tub of the premium yogurt at 50% off the normal price — as well as the name of the nearest partner grocery store that carries the item. If the customer is interested, they’ll pay for the item on Aisle50’s site, then ‘load’ that purchase onto their grocer’s loyalty card.
The customer then heads into the store to pick up the Chobani yogurt, along with their other groceries. The cashier rings up everything as usual, and when the customer swipes their loyalty card, the price of the yogurt (which they’ve already paid for) is deducted from the price. Unlike sites like Groupon, there are no printouts or potentially confusing interactions with the cashier involved (well, assuming the customer understands how the process works).
Of course, this also means that Aisle50 needs to integrate with the various loyalty systems used by large supermarkets. This will take plenty of legwork, but they’re already making some good progress — they landed Lowes Food in August, and say that they’ll be launching partnerships with several other ‘banner’ stores in Q1 2012.
As for the money changing hands: Aisle50 takes a small cut of the discounted item price (it’s much less than the 50% typically taken by Groupon). And the retailer gets paid the full, undiscounted, price of the item by the manufacturer, plus a small standard 8-cent fee for handling the coupon. The manufacturer’s total cost winds up being the price of the discount, plus Aisle50’s cut, plus the 8 cent handling fee.
Which sounds like a lot, but actually isn’t out of the ordinary for these food brands. Cofounder Chris Steiner says that unlike Groupon, which often deals with businesses that have never offered steep discounts (and may not know how to handle them), the grocery industry has been built around using major promotions to build consumer demand for ages. From the manufacturer’s perspective, Aisle50’s service is a lot like the coupons they frequently pay to insert in newspapers — but the site doesn’t feature ads for a competitor’s product on the next page.
The grocery stores aren’t making much money from the sale alone, but they still benefit because these deals result in a lot of foot traffic — Aisle50’s early data shows 26% of customers heading to a store to redeem their deal are shopping at the store for the first time in over a month (in other words, it’s driving traffic to stores a customer wouldn’t otherwise visit). Likewise, 50% of the purchases through Aisle50 mark a customer’s first time buying a product, so manufacturers are introducing their goods to a lot of people.
Aisle50 seems to be off to a good start, though it’s still very early days for the company. In contrast to daily deal sites like Groupon, which offer at least one (and typically several) deals per day, Aisle50 is currently only offering around one deal per week, and there aren’t yet any options to explore additional deals beyond the one you receive in your inbox. Steiner says that the company recently hired two salespeople who are working to expand the number of manufacturers on the site, so we’ll be seeing more frequent offers soon.
Update:: Ron Conway and Yuri Milner did not actually re-up their investments, beyond what they contributed as part of StartFund.