Disruption Update: Vending Works Out Its Kinks

What Bodega’s disastrous rollout says about the concept’s potential

By 
Greg Lindenberg, Editor, CSP

Kristina Peters, Associate Editor, CSP

This is a story about Silicon Valley hubris vs. the livelihoods of independent mom-and-pop retailers.

It began when two former Google employees unveiled a new concept called Bodega, claiming to have built a better corner store. Similar to a vending machine or hotel minibar, Bodega is a 5-foot-wide, 3-foot-deep “pantry box” that the company stocks with a customizable assortment of nonperishable items, such as snacks, beverages, pain relievers, shampoo and laundry detergent. Customers unlock the unit with an app, cameras register what they take, and their credit card is charged.

In September, a Fast Company article provided the concept with some high-profile exposure, but the public response was more miss than hit. Social media erupted with tweets calling the concept “offensive” and “disrespectful.” The problem? The startup’s name, which has Hispanic origins.

As it attempts to capture the “last mile,” is Bodega one of the biggest marketing miscalculations ever?

Paul McDonald, who spent 13 years as a product manager for Google, launched Berkeley, Calif.-based Bodega with co-founder Ashwath Rajan, another Google veteran, with funding from investors, including First Round Capital, Forerunner Ventures and Homebrew. They also secured angel investment from senior executives at Facebook, Twitter, Dropbox and Google, according to Fast Company.

McDonald and Rajan tested 30 of the boxes in San Francisco in apartment-building lobbies, gyms and college campuses, and then rolled out 50 Bodega units on the West Coast. They also conducted surveys regarding the name. Fast Company asked McDonald whether he was concerned that some people might perceive the name to be culturally insensitive.

“I’m not particularly concerned about it,” he told the publication. “We did surveys in the Latin American community to understand if they felt the name was a misappropriation of that term or had negative connotations, and 97% said no. It’s a simple name, and I think it works.”

But the ensuing backlash suggests that these surveys may have been inadequate. On Twitter, the concept was lambasted as “insensitive and disrespectful” and accused of attacking the many immigrants who run bodegas. Frank Garcia, chairman of the New York State Coalition of Hispanic Chambers of Commerce, who represents thousands of bodega owners, told Fast Company, “To me, it is offensive for people who are not Hispanic to use the name bodega to make a quick buck. It’s disrespecting all the mom-and-pop bodega owners that started these businesses in the ’60s and ’70s.

“Real bodegas are all about human relationships within a community, having someone you know greet you and make the sandwich you like.”

Acknowledging the backlash, McDonald said on the company’s blog: “It’s clear that we may not have been asking the right questions of the right people. Despite our best intentions and our admiration for traditional bodegas, we clearly hit a nerve. … We apologize.”

He said the company is not trying to put corner stores out of business. “Challenging the urban corner store is not and has never been our goal,” McDonald wrote. “They stock thousands of items, far more than we could ever fit on a few shelves. Their owners know what products to carry and in many cases who buys what.”

Instead, he said, “we want to bring commerce to places where commerce currently doesn’t exist. Rather than take away jobs, we hope Bodega will help create them.”

And the controversy surrounding Bodega’s name doesn’t necessarily signal the company’s end. “This has been priceless PR, which they will take all the way to the bank,” said Peter Fader, professor of marketing for The Wharton School at the University of Pennsylvania, on Retailwire.com.

Jett McCandless, founder and CEO of technology provider project44, Chicago, agreed.

“The name itself isn’t bad—it makes sense, and it doesn’t imply that you’re putting people out of work,” he said on Retailwire. “The issue was in saying that they aim to replace bodegas instead of supplement them. They could have just implemented their plan and let the rest take its course.”

Convenience stores, e-commerce providers and delivery services are all competing to get goods and services to consumers not only in their homes but also in their daily lives. It’s what’s known as the last mile of retail.

Joe DePinto, president and CEO of Irving, Texas-based 7-Eleven Inc., recently narrowed the last mile to the “last several blocks.”

“It could be in the form of order and pickup; stopping in if you’re passing by or it’s on your route or part of your normal pattern; or delivery, and then allowing you to pay how you want,” DePinto told CSP earlier this year [CSP—June ’17, p. 22]. “That just scratches the surface. That will be the table stakes to get into the game.”

Bodega wants to narrow the last mile even further. “Shopping doesn’t have to mean a car ride to a 30,000-square-foot building filled with thousands of products you’ll never buy,” McDonald wrote, “but instead a short walk of less than 100 feet to a small store stocked with just what you need.”

McDonald and Rajan are hoping to have more than 1,000 Bodegas in place by the end of next year, the entrepreneurs told Fast Company.

This is not the first time an automated unit or vending-machine concept has tried to grab a foothold in the convenience-store industry.

Bodega’s business model is reminiscent of Shop24, which placed large kiosk-sized automated c-stores on college campuses and apartment complexes in several states. However, it does not appear to have gained any traction as a retail concept.

Then there’s Cargo, which works with ride-sharing drivers to integrate a mobile storefront in each vehicle to provide passengers with convenience products such as chips, gum, candy, energy drinks and over-the-counter medicines. Drivers get a cut every time a product is ordered and receive bonuses upon hitting sales goals.

And, of course, the Bodega concept brings to mind Amazon Go, the cashierless c-store concept from Seattle-based Amazon that uses “just walk out” technology to detect when a customer takes a product off the shelf and keeps track via a virtual cart. Seattle-based Amazon had to delay the concept’s official rollout because of operational issues.

Despite this spotty history, vending does have potential. Even Bodega’s woes are more the result of poor branding than an inherently unsound concept.

“Best Buy proved that a company can add significant sales and profits with the correct product mix in the correct places. They did a great job with airport kiosks with travel-related technology, for example,” said Phil Masiello, founder and CEO of Hound Dog Digital Marketing Agency, Towson, Md., on Retailwire.com. “For Bodega to succeed, it will really come down to understanding the customer needs in the specific place they put the machines.”