ISO: Fast Food – PETER MIDTGAARD, DIRECTOR OF FINANCE

When you’re a small supermarket chain with only 1.5% of the market, rapid growth is difficult to achieve. If your home market is limited to your country’s capital city, then the competitive threat is even greater. So the decision by Danish supermarket chain ISO to launch into e-commerce during 1998 was both brave and necessary.

ISO has done more than just succeed at e-commerce. As supermarkets in the United States struggle to figure out how to sell groceries on the Web, one company – ISO – consistently is mentioned as the one doing it right.

Customers can do more than just arrange for home delivery or pickup from the site (www.iso.dk). ISO has introduced handheld scanners for in-store shoppers to tally their own purchases and thus avoid the checkout line. It also has distributed scanner pens for ordering at home, which work by waving the pen across the barcodes on items in the refrigerator and then downloading the information into a home computer. Shopping can be done by phone and fax as well.

The company has been in operation for 35 years. Over much of that time it expanded slowly, mostly in Copenhagen. “In the areas where you find ISO, we dominate the market,” notes Peter Midtgaard, director of finance for the chain. But it wasn’t until five years ago, when new management and a new store concept were introduced, that ISO grew to 11 stores.

The new stores were similar in concept to Rainbows in Minneapolis. Oriented toward the top end of the market, they are the only supermarkets in Denmark to have a fresh fish department and a fresh meat section in which customers can ask the butcher to cut meat to order. The huge produce departments are three times larger than those in most Danish supermarkets.

Even this was recognized as not being enough. “We had to get bigger to remain independent,” claims Midtgaard. He began looking into where ISO’s opportunities were. Having spent some years tracking the growth of electronic commerce, “I tried to figure out how we would do it,” he says.

Rather to his surprise, the board accepted his sophisticated proposition for an ISO e-commerce Web site, and Midtgaard was immediately faced with his first challenge. “We heard rumors that our biggest competitor planned to start its own site one month before us, so we reduced our schedule,” he says. “We succeeded, and they still haven’t started.”

A difficult early decision was which products to list. About half the items found in an ISO store were initially put up on the site. Items were chosen based on how easy they’d be to deliver: high-frequency purchases like coffee, sugar and milk. Meat, fish and delicatessen products were not included, which Midtgaard now admits was wrong. “Customers immediately asked for all those products, so we are working on putting them into our e-commerce offer, too,” he says.

He believes that ISO’s brand positioning among its customers is such that they trust the company to deliver fresh, perishable items ordered from the Web site. The system used for the site was developed in cooperation with a local data processing bureau, and is linked to the main pricing system, allowing updates to be made just once for all channels. Delivery services are outsourced through two specialized logistics companies.

As part of its service offer, ISO will deliver orders to home or workplace. It also has sophisticated payment options. For example, customers can pay monthly by having their bill deducted directly from their salary. In fact, the company has close relationships with businesses. It developed a special service that provides produce to smaller organizations that operate staff cafeterias.

Midtgaard says the success of ISO’s e-commerce strategy was almost forced on it because of its market position. “If we didn’t do it, somebody else would have. So why don’t we start and get the image of being new and creative? Then we will keep our customers and attract new ones to the store.”