Loyalty loss leader: Belly’s real aim is to own the in-store experience

By Michael Carney , written on August 28, 2013

From The News Desk

Chicago-based loyalty and in-store experience startup Belly made news this morning for its $12.1 million Series B-1 financing that added 7-Eleven and Cisco Systems as strategic investors alongside prominant VCs.

But more interesting than the financial war chest that Belly is amassing – it raised $12.8 million previously, and the the “B-1” characterization of this round is an indication that it’s expecting additional financing to close in the near future – is the massive network of consumer facing, in-store tablets that the company continues to build. The value of this infrastructure is far more than meets the eye.

Belly has more than 6,500 active locations in 18 geographic markets within the US, by far the largest such network of any company in the loyalty category or otherwise. The network includes both local merchants and nationwide chains like McDonald’s, Domino’s, Chick-fil-A, and 7-Eleven.

In each location, Belly has an owned-and-operated iPad, the boxes from which line the lobby of its Chicago office from floor to ceiling like some sort of modern, uber-materialistic wallpaper. Through a custom HTML5 software, Belly serves up promotions on each counter-top tablet that can be updated in real-time without the need to wait for App Store approval. The platform also allows the company to customize the in-store experience for each merchant.

Although not stipulated explicitly by the company, the announcement of its strategic relationship with 7-Eleven looks likely to more than double Belly’s number of active storefronts in the near term by installing its tablets in many of 7-Eleven’s 8,500 US locations (and perhaps, eventually in its 45,000 worldwide locations). Cisco on the other hand, is the leading provider of WiFi hardware and services to small and retail businesses in the US, according to Belly CEO Logan LaHive – relationships which Belly will be eager to leverage.

“We are focused on market saturation,” LaHive says. “We want to make sure you can use Belly everywhere in these markets.”

As Sarah Lacy noted previously, as a Lightbank portfolio company, Belly is being shepherded through this local land grab by none other than Groupon’s Brad Keywell and Eric Lefkofsky. And while there’s still a bit of a hangover from Groupon’s expand at all cost strategy, there’s little arguing that the company and the team behind it learned a thing or two about how to reach scale quickly in a local business – and how not to. This insight was a big reason for Andreessen Horowitz’s willingness to lead the company’s $10 million Series A round in May 2012, according to partner and former OpenTable CEO Jeff Jordan.

Today’s Series B round was co-led by Andreessen Horowitz and new investor NEA, with participation from new investor DAG Ventures and existing investor Lightbank, as well as strategics Cisco Systems and 7-Eleven subsidiary 7-Ventures. (Disclosure: Andreessen Horowitz partners Marc Andreessen, Jeff Jordan, and Chris Dixon are investors in PandoDaily.)

Belly’s more than 2 million members – a number that increases by 4,000 to 6,000 a day – carry physical or mobile app-based loyalty cards that can be scanned when visiting a Belly-enabled merchant. Repeat visits and other forms of in-store engagements result in rewards. A 7-Eleven customer, for example, may eventually earn a free Slurpee, while a McDonalds customer could supersize their next value meal for free. Rewards drive repeat visits. Wash. Repeat. Belly sees more than 300,000 such check-ins per week.

Along the way, Belly is collecting Foursquare-like location, behavioral, and demographic data at every turn. And this data is dripping with value. The company can thus help merchants better understand their consumers, where they shop, and what types of marketing efforts lead to the highest engagement rates across the network.

It’s easy to pigeonhole Belly as a loyalty platform. The company appears to have emerged as the definitive victor among a dozen or more challengers, many of which are already in the grave while others appear headed for a similar fate in the not-so-distant future. For LaHive, the opportunity created by Belly’s in-store infrastructure and its rapidly growing treasure trove of consumer data is far bigger than just loyalty. The company is heavy into providing analytics around customer behavior and aims to expand into retail merchandising, marketing services, and maybe even payments.

“Our vision from the beginning has been to revolutionize in-store technology,” says LaHive, who was once an early employee at video rental kiosk giant Redbox.

In this sense, the company’s competitors are less loyalty platforms like Stampt and Offermatic, neither of which have achieved anywhere near the same scale as Belly, but rather companies like Square and even Groupon, which are trying to redefine how local merchants interface with consumers. Groupon has expressed a desire to offer the loyalty, rewards, payments, and other local services. Square on the other hand, is quickly upgrading its network of merchants from smartphone and tablet dongles, to installed tablet-based point of sale (POS) systems.

Also, software giants Google, Facebook, and Foursquare have their own loyalty and in-store engagement offerings – Google through its 2011 acquisition of Punched and Facebook following its April 2012 acquisition of Tagtile – although none offers an in-store hardware infrastructure currently.

LaHive is unsurprisingly bullish on the local category, but the CEO offers the rising public and private valuations of Yelp, Uber, GrubHub, AirBnB, Facebook, OpenTable, and Groupon as evidence of a positive trend.

But local is a hard business. There’s no two ways about it. Belly is only in 16 geographic markets today because it needs to assemble and train (not to mention pay for) an on-the-ground salesforce in each. At the same time, the businesses and residents of each market must be sufficiently tech-savvy and there must be enough population density in a location to justify Belly’s focus. As big as the opportunity is to reinvent the in-store experience, taking advantage of it is an equally daunting challenge. And none of this addresses the monumental challenge of moving from building a loyalty-focused product to a full merchant services suite.

LaHive is well aware of these challenges. But with a fresh capital and access to one of the largest retail chains in the country, Belly is poised to dramatically grow its reach over the coming year. The company may not have room for all the iPad boxes in its lobby, but it will surely find somewhere to store all the data it collects. It’s this data and the insights that will be extracted from it that are the real value here.

Belly is not the only company to collect consumer behavior data. CVS, Target, and other mass retailers know more about our shopping behavior than most people realize. But this knowledge is confined to a single store. Belly, on the other hand, could potentially tell CVS how often customers shop in Wallgreens and 7-Eleven.

Foursquare, on the other hand, aspires to offer similar data by way of check-ins, but there’s not much appeal in being the Mayor of a pharmacy or in reading recommendations from purchasers of band aids. At the same time, GPS-based location data isn’t nearly as reliable as a consumer checking in on a tablet mounted besides a store’s cash register. With its rapidly-growing infrastructure, Belly has the opportunity to marry location and behavior data in a ways that few other companies can.

LaHive and his investors have recognized the opportunity from the beginning – even if it’s only just becoming clear to the rest of us. The company faces several more years of block-and-tackle growth in which it must onboard both new merchants and consumers to its platform. Strategic deals like today’s with 7-Eleven and Cisco will help, but this is not something that can be shortcutted.

Groupon proved what happens when a company chooses speed over sustainability as its primary growth mantra. Belly will look to learn from the mistakes made by others before it. The opportunity to reinvent the in-store experiences is too big for it not to.