Marketers clamor for mobile expertise through start-up acquisitions
February 14, 2014
Kroger's mobile app
As it becomes more imperative for retailers to develop in-house mobile expertise, the number of acquisitions and investments that marketers allocate towards gaining complete control of mobile is on the uptick.
Kroger is the newest example of how retailers are investing in technology start-ups to build up better mobile and digital initiatives with the acquisition of San Francisco-based You Technology for an undisclosed amount. With more consumer-packaged-goods brands ramping up their mobile investments, Kroger’s acquisition shows the lengths that grocery and food and beverage marketers are willing to go to develop in-house mobile initiatives.
“I’d argue that in today’s world, digital, data and mobile are all things that you’re going to want to own — you’re not going to want to rely on third-party vendors to provide what is likely to be the biggest shift in your customers over the next 10 – 20 years that is occurring today,” said Rajeev Chand, managing director and head of research at Rutberg & Co., San Francisco.
“It can provide proprietary advantage,” he said. “Starbucks, Safeway and Tesco have all shown that, and so I think if you’re a retailer in the 21st century and in the digital era, you’re going to want to have digital capability in-house, you’re not going to want to have this simply outsourced to third-party vendors – it’s too important.”
Building up in-house expertise
You Technology has been powering Kroger’s online and digital coupons since 2010.
Starbucks' mobile app
The company’s technology gives Kroger more resources to leverage into its mobile and digital efforts as a way to connect with consumers in-store.
Kroger reports that in the past 12 months, consumers have downloaded more than 400 million digital coupons, showing the growing appetite for coupons and offers from smartphone-wielding consumers.
“This is another step in our continuing efforts to build our digital capabilities to deliver a more relevant overall experience for our customers,” said Keith Dailey, spokesman at Kroger, Cincinnati, OH.
Walmart's mobile app
You Technology claims that it has a network of 10,000 retail stores that reaches 100 million households in the United States and totals $100 billion in retail sales.
The technology company will continue to operate as an independent business within Kroger.
Kroger’s new acquisition points to how competitive the in-store grocery space is getting for marketers.
During the company’s second-quarter 2013 results in September, Kroger claimed that its app was in the top 2 percent of most-downloaded apps in Apple’s App Store. Kroger also added a virtual loyalty card to its app in May last year (see story).
By bringing more mobile expertise in-house, Kroger could potentially be looking to tap into the success that other grocers such as Safeway have seen with mobile.
During Safeway’s third-quarter results call in 2012, 40 percent of the grocery chain’s revenue came from its “Just for U” loyalty program, which targets personalized deals to consumers based on past purchases.
Safeway launched a mobile app for the loyalty program in May 2012 (see story).
Tesco also has a number of mobile and digital initiatives to boost its loyalty programs, according to Rutberg & Co.’s Mr. Chand.
For example, the British grocer rolled out in-store iPads in several stores last year to boost loyalty program sign-ups (see story).
Starbucks is yet another example of a retailer that has seen success with mobile initiatives that now primarily are developed in-house.
During the coffee company’s first-quarter 2014 results, Howard Schultz, CEO of Starbucks, Seattle, said that Starbucks is close to hitting five million weekly mobile transactions, due in large part to the company’s app that integrates payments and rewards (see story).
Cutting down on the competition
In addition to the food and grocery space, Walmart, Amazon, eBay and Sephora are all other examples of retailers that are investing in mobile start-ups to build up more in-house mobile expertise.
Walmart has been particularly aggressive in mobile acquisitions, acquiring companies including Small Society and OneRiot in 2012. The acquisitions were meant to help boost the big box retailer’s California-based technology branch, Walmart Labs.
Previous to the Walmart acquisition, OneRiot was known for its work in developing the Starbucks mobile payment app.
In August, Sephora acquired software startup Scentsa to build out better in-store digital products.
Then in December, eBay acquired mobile app developer StackMob to improve mobile payments and apps.
Amazon also acquired mobile payments company GoPago last year, which consists of both a consumer-facing app and point-of-sale tools for merchants (see story).
With Amazon reportedly rolling out its own mobile point-of-sale service to retailers, the GoPago acquisition gives the online giant some bricks-and-mortar resources.
“The retailer model — bricks-and-mortar — is changing, and we think we'll start seeing a ‘showroom' construct rolling out,” said Barry Lowenthal, chief innovation officer at Maxxcom Global Media, New York.
“We imagine a world where consumers browse for goods in a showroom and then order using their mobile device for home delivery later that day,” he said.
“Look for even more geolocation-based companies to be acquired and especially companies that can track customers within the walls of actual bricks-and-mortar stores.”
At the same time that retailers are gobbling up mobile start-ups, it is also possible that marketers may be interested in acquiring some of the online retailers that have quickly seen success with mobile.
For example, a multichannel or catalog marketer may be interested in acquiring a Gilt or Rue La La-type of brand — which both see higher-than-average mobile traffic and sales — at some point to build out their mobile strategies.
According to Rutberg & Co.’s Mr. Chand, traditional retailers have struggled with the premium multiples that are necessary for these kinds of deals, which is why some of the bigger acquisitions are primarily done by Internet giants such as Google, Amazon and Facebook.
However, it is possible that as mobile becomes a more critical piece of the traditional retail experience, retailers will want to invest in mobile-driven retailers to build up better shopping experiences and eliminate competition.
“Mobile is having a major impact on the retail landscape, and many of the bigger companies realize that they need to adapt,” said Mary Jo Zandy, managing director of Berkery Noyes, New York.
“This bodes well for future M&A activity as acquirers look to fill voids in their existing product offerings,” she said.
Lauren Johnson is associate reporter on Mobile Marketer, New York
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