Next-Generation Grocery Tech Stack

New technologies are transforming the customer experience and the core economics for grocery stores.

Grocers are under intense pressure to address changing customer preferences while new tech-enabled competitors are gaining momentum. Many have turned to Instacart as a quick fix, but they all have (or will) realize that ceding their customers to a third party is a risky approach. An opportunity exists for one (or a few) startups to create the “tech-stack” for grocery – providing online ordering, picking, and pickup/delivery capabilities for the 36,000 grocery locations in the U.S.

Why Now? – Grocery Under Pressure
The grocery experience has remained largely unchanged for the past twenty years. Three developments are changing the status quo:

  1. Online grocery ordering is going mainstream: 37% of internet-using adults in the U.S. made an online grocery order last month (up from 23% a year ago). Adoption is even stronger in Europe.
  2. Cashier-less checkout is becoming a reality: Amazon-go (and others) proved that a cashier-less store is possible. Investments and experiments over the next few years will test if the model is economical and scalable.
  3. Non-grocery players entering the market: Grocery retail is becoming a technology problem, not just an operations/personnel problem. This dynamic has attracted Amazon, Ocado, and other tech-first companies to compete against traditional grocers.

New Models Putting Pressure (Wreaking Havoc?) on Grocery Margins

  • Online ordering breaks the grocery operating model: Consumers have been a source of free labor since Piggly Wiggly opened the first self-service grocery store in 1916. Shifting this burden to the grocery store adds as much as $10 to a $100 basket. In a world where grocers operate on low single digit margins, this simply isn’t sustainable.
  • New entrants arriving with lower cost structures: Automated stores and fulfillment solutions will bring lower variable costs structures, inevitably threatening traditional, slim-margin grocers.

What Areas Excite Us Today?
We’ve seen amazing companies trying to help grocers by delivering new experiences for customers. We have made investments in Grabango (frictionless checkout) and Pensa (drones for out-of-stock automation) and remain interested in the following categories:

  • Cashierless Checkout Platforms
  • Fulfillment/Picking Automation
  • Solutions to Grocery Spoilage
  • Platforms for Online Grocery Ordering
  • Reinvention of the Convenience Store Format
  • Tools to Measure (and Eliminate) Out-of-Stock Items
  • Removing Distributors/Middlemen in the Food Supply Chain

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