SUPERMARKETS QUESTION IMPACT OF ELECTRONIC COUPONS

CHRISTINE BLANK

ORLANDO, Fla. -- Internet coupon executives who gathered here for the recent Joint Industry Coupon Council were forced to defend their business models after a number of buyouts and closures in 2001. This left some supermarkets questioning the viability of broad-based Internet coupon programs.

Among some of the casualties, Catalina Marketing, St. Petersburg, Fla., acquired the intellectual property of OneClip after it went out of business earlier this year. Transora, Chicago, Ill., acquired online retail and CPG promotions firm Planet U, and Internet firm eCoupons closed. Most recently, Save.com was forced to shut down after Livonia, Mich.-based Valassis Communications, which owned a 50% stake in Save.com, pulled its funding.

"The players that are left standing -- Transora, Smart Source, Catalina Marketing -- are the stronger players," said Chris Linskey, general manager of Super Markets Online, Anaheim, Calif., operated by Catalina Marketing, during a panel discussion. Others on the panel were: Gay C. Colvin, global account executive, Transora, Hilton Head Island, N.C.; David Hutchings, vice president of business development, ClipACoupon.com, Huntsville, Ala., and Chuck Sawyer, vice president of CoolSavings.com, Chicago.

Meanwhile, supermarkets polled by SN were taking a wait-and-see approach before fully endorsing Web-based coupon programs. Some were interested in more targeted programs rather than a broad-based offering on a connected Web site.

Food Lion, Salisbury, N.C., which offers Super Market Online's ValuPage coupons on its Web site, said it has reaped some benefits from the Internet coupons. "We like them because they do generate traffic to our Web site. Having them on the Web site does add value for our customers," said Bill Thomas, Food Lion's director of marketing.

However, Food Lion executives have not been able to determine if Internet coupons generate incremental sales. "We like having them there, but we can't tell that they're having a great effect on sales as of yet. We have seen nothing that bears that out at this point," Thomas said.

Marv Imus, owner of Paw Paw Shopping Center, Paw Paw, Mich., echoed a similar sentiment. Although the store had utilized Planet U's U-pons on its Web site for a few years until this summer, "activity was minimal at best," Imus said. Paw Paw Shopping Center ended the service when its wholesaler, Spartan Stores, pulled out of its agreement with Planet U.

However, Imus said the primary hindrance to Internet coupons' success was the low connection speeds to the Internet in the retailer's operating region. "Less than 1% of my customers have broadband capability, and most are lucky to get on at 28K. At that speed, you cannot spend that kind of time downloading coupons. You are not going to spend 20 minutes to save 20 cents on a jar of ketchup," Imus said.

Other retailers are looking to do more one-to-one marketing.

"We're trying to get out of forcing our customers to purchase products they wouldn't normally buy," said Bill Stimmel, vice president of operations, Churchill's Super Markets, Toledo, Ohio.

Instead, Churchill's built an in-house e-mail database of 700 customers earlier this year and now e-mails printable coupons relevant to customer purchases every three or four weeks. "The redemption rate of the 'dollar off' coupons has been a little over 10%," Stimmel said.

Pat Iasillo, director of customer relationship marketing, Remke Supermarkets, Covington, Ky., said the seven-store chain would like to provide similar one-to-one coupon offers through direct mail, e-mail or point of sale, rather than a broad Internet coupon program. "I would like to make specific offers to specific households," Iasillo said.

Despite the uncertainty expressed by these food retailers, Internet coupon executives said they are optimistic that the recent shakeouts and diversification into other promotional niches will sustain them going forward.

Linskey said economic pressure has forced Super Markets Online to become a smarter operator. "Like many other Internet firms, we have been forced to ride out the downturn in the Web economy. However, despite the harsh environment, we have been able to still grow in terms of developing new products, increasing our subscription base and improving our site," he said.

CoolSavings, Chicago, has seen its membership rise to nearly 16 million households, according to Chuck Sawyer, vice president. Between 500,000 and 600,000 consumers register to receive offers at CoolSavings.com monthly. Retailers utilizing CoolSavings electronic promotion services include Sears, Target and JCPenney, as well as online travel firm Orbitz and cataloger Land's End.

Sawyer said CoolSavings' success can be partly attributed to its diversified customer base. Consumer packaged goods firms' contribution is only about 8% of CoolSavings' revenue, he said.

Meanwhile, David Hutchings, vice president of business development, ClipACoupon.com, Hunstville, Ala., believes his company has continued to grow because it licenses its Internet coupon technology to retailers.

Although the firm does not currently have supermarkets using the technology, Hutchings said it is in discussions with several grocery store chains. He declined to give specific names. In addition, Super Markets Online licenses ClipACoupon's technology, and Circle K is testing it, he added.

The weakening economy has the potential to either boost or curtail future coupon programs, the executives speculated during the discussion.

"As the economic situation worsens, the number of consumers interested in saving should increase accordingly," Linskey said. "Consumers see coupons online as a very compelling way to get savings."

Still, Internet coupon operators are aware that marketing and advertising programs are among the first programs axed when companies make budget cuts. "It is possible that coupon programs will be affected if major budget cuts occur, particularly if they are not efficient methods of moving a given product," Linskey said.