Appetite for Change
As Grocery Shopping Changes Fast, Project Teams Aim to Deliver What Customers Crave
BY KATE ROCKWOOD
ILLUSTRATION BY JOAN ALTURO
The grocery industry is stocking up for the digital future.
Large chains and tech startups alike are transforming the shopping experience by launching innovative projects to expand online capabilities and roll out next-gen in-store payment, checkout and delivery systems.
Megadeals also are accelerating the pace of change. In August, Amazon scooped up Whole Foods for US$13.7 billion, then quickly launched a project to integrate more than 1,000 of the chain's grocery items into its Amazon.com, AmazonFresh, Prime Pantry and Prime Now online shopping platforms.
Consumers are hungry for change. For instance, while only 14 percent of shoppers order groceries online today, 30 percent are open to doing so in the immediate future, according to a 2017 global report by Nielsen (see “Online Opportunities,” page 42).
But project teams looking to build digital capabilities must navigate complex challenges, says grocery industry analyst Phil Lempert, founder, SupermarketGuru.com, Santa Monica, California, USA. Even seemingly straightforward app development projects must integrate an array of back-end systems, including inventory management, customer demographic databases and delivery logistics. Project professionals tasked with delivering value are navigating unchartered waters—with high stakes and high potential rewards.
“If the team can think differently and be willing to make mistakes, they can move rapidly and achieve success,” Mr. Lempert says. “The skill is being curious and innovative.”
FAST AND FRESH
Even project teams from the most innovative companies understand there are plenty of wrinkles to iron out to get groceries to a customer's front door. “Inefficient delivery is the main bottleneck in the growth of grocery e-commerce,” says Henry Harris-Burland, vice president of marketing, Starship Technologies, London, England. “Once that constraint has been removed, it will result in growth across the industry.”
Instacart, which launched in 2012, is a third-party service that allows customers to order groceries via an app and have them purchased and delivered from local stores that partner with the service. While the service expanded in the U.S. and Canada this year, the company is still focused on creating efficiencies that help the contractors who shop for and deliver groceries stay on time.
For another grocery delivery company, Shipt, creating the online shopping catalog meant launching multiple labor-intensive projects, says company founder and CEO Bill Smith, Birmingham, Alabama, USA. “When we launched, the digital catalog and data about a store's inventory did not exist. So we developed that database on our own,” he says.
The project team had to manually catalogue aisles of a few grocery stores in each market—an immense task given that most stores carry at least 40,000 products. “We were sending people into stores just to take pictures of items,” Mr. Smith says. “Investing in the tech behind these projects was huge, but it was really a huge investment in labor.”
Global annual retail food sales
Projected annual increase in global grocery sales through 2020
Global online grocery sales in 2016, a 15 percent increase from the previous year
Projected global online grocery sales by 2025—9 percent of the market
Amount of venture capital funding raised by 65 tech startups in the past five years to fund grocery projects leveraging artificial intelligence, chatbots, virtual reality and interactive displays.
Sources: U.S. Department of Agriculture, 2017; Dun & Bradstreet First Research, 2017; Kantar Worldpanel, 2016; CB Insights, 2017
Now Shipt takes a more collaborative approach, formally partnering with grocery companies so it has easier access to their inventory data. (In December, retailer Target announced it would buy Shipt, although the delivery company will continue to operate independently and pursue business with other retailers.) This shared effort helps lower labor costs and project budgets. And there's a benefit for customers, too. “The consumer experience gets better, because we're able to share up-to-date pricing and data directly from the grocer,” he says.
The next frontier for all grocers is implementing new delivery methods. But whether it's drones or robots, these innovation projects can't go full speed until project teams sort out all requirements and risks. For instance, while Amazon completed its first public pilot project for drone delivery in March, it could be years before there's a broad rollout in the U.S. The company awaits finalized rules from the U.S. Federal Aviation Administration for commercial drone operation in urban areas.
“If the team can think differently and be willing to make mistakes, they can move rapidly and achieve success.”
—Phil Lempert, SupermarketGuru.com, Santa Monica, California, USA
In the United Kingdom, Starship Technologies is partnering with grocers to execute pilot projects testing autonomous robots that can deliver groceries in 30 minutes or less to homes within a 3-kilometer (1.86-mile) radius of a store. The robots are small enough to navigate sidewalks—slashing transport time in urban areas where street traffic is congested.
“We're testing projects in multiple cities around the world and partnering with grocers, restaurants and retail,” says Mr. Harris-Burland. “Different cities have different complexities. For instance, the traffic laws in the U.S. are different than in the U.K., and different countries have different customer habits and delivery expectations.”
Interest in online grocery shopping is still developing around the world. More than half of customers say they have purchased groceries online or will consider doing so in the future:
44% Prefer to buy at a physical store and will not consider buying online
30% Currently not buying online but will consider it in the near future
14% Currently buying online regularly
11% Have bought online in the past but not recently
Proportion of people who say they regularly shop for groceries online, by region:
Source: The Nielsen Company, 2017
“Inefficient delivery is the main bottleneck in the growth of grocery e-commerce.”
—Henry Harris-Burland, Starship Technologies, London, England
Delivery robot from Starship Technologies
Starship's project team had to design the robot with enough cameras and sensors to avoid pedestrians and potholes, traverse curbs and speed bumps, and travel at a speed ensuring both safety and quick delivery. The finished robot moves at about 4 miles per hour (6.4 kilometers per hour).
But Mr. Lempert is clear-eyed about the extent of benefits for such projects. Ultimately, he says, teams need to tailor delivery options to a consumer's residential environment. “If I live in a dense urban area with high congestion, a sidewalk robot may be appealing, or if I live on the 25th floor of a high-rise, and a drone can fly up to my window, that's very cool,” he says. “But that works in maybe 20 cities around the world. Robots and drones aren't going to have the same appeal to folks that live in the suburbs.”
AISLES OF INNOVATION
E-commerce isn't the only focus for next-gen grocery projects. Organizations of all sizes are beefing up their tech portfolios to make the in-store experience as streamlined and personalized as possible.
The future-focused portfolio for U.S. chain Kroger includes a system that monitors customer traffic and uses data algorithms to ensure each store has an adequate number of cashiers working at any given time. The company also launched a pilot project in 14 stores in which sensor-laden shelves recognize shoppers via their smartphones and offer them personalized product selections and promotions. That technology can help highlight peanut-free products for a shopper with a food allergy or spotlight a cereal that appears on the shopper's grocery list, for example.
Shipt fulfills and delivers online grocery orders.
At Chinese e-commerce grocery Yihaodian, consumers are craving access to U.S. and European products, says En-Zhi Tai, director of platform service tech, Yihaodian, Shanghai, China. While it's a challenge to obtain those products, there's also a technological hurdle to overcome relative to predicting and recommending new products to customers.
“It's so much data and analysis and preparation, but now we can guess which products customers will want.”
—En-Zhi Tai, Yihaodian, Shanghai, China
That's why Mr. Tai is overseeing a project to integrate Walmart's powerful product data system. The project will give Yihaodian access to local customer purchase history and product reviews so the company can tailor store items to customer preferences. “It's so much data and analysis and preparation, but now we can guess which products customers will want,” he says.
UNLOCKING THE FUTURE
Smart grocers and their digital partners are also starting to leverage smart-home technology to launch new projects. Walmart and smart-home tech company August launched a pilot program last year that allows Walmart employees to deliver groceries straight to a customer's kitchen. The delivery workers gain entry via a one-time code for homes that use August's smart security system. A customer could order groceries from an app while at work and find everything in the refrigerator or pantry when he or she gets home.
Shipt just launched a new joint venture with a device manufacturer that would allow shoppers to scan an item at home to add it to their next Shipt grocery order. “We'd distribute the device and integrate it with our orders,” says Mr. Smith. “If a customer scans an item we don't have access to, we'll match it to something similar.”
Such tech capabilities could become the first step toward grocery purchases becoming a focus for ultra-smart kitchens. For instance, smart sensors inside a refrigerator would determine when you need more milk or eggs and could automatically order the items for delivery. Projects that deliver such technologies are the final frontier in disrupting the grocery market, Mr. Lempert says.
“The real game-changer is when smart refrigerators and smart cupboards automatically replenish what families need,” he says. “The technology is here. It's just a matter of how quickly we can get the appliance companies and the cabinet companies to communicate in an intelligent way.” PM
Craving What's Next
High-tech grocery projects go beyond online orders and new delivery methods.
New Zealand software developer Lumaten last year launched a pilot project that uses virtual reality (VR) to help clients test the appeal of new grocery products before they are introduced in physical stores. Test customers use a VR headset and hand-held wand to select products, and the technology tracks and documents those selections.
British grocer Waitrose has another solution for those who don't like long checkout lines. In September, the company launched several temperature-controlled lockers at Waitrose parking lots. The service allows shoppers to order online and then select a time to collect their groceries from a locker using a security code received via text.
U.S. online grocery startup Farmstead is using artificial intelligence to manage its inventory and cut costs by reducing product overhead. The system uses customer order histories to determine which products and how much of each product the company should purchase.