2022 has been a challenging and transformative year for grocery retail. Trends that emerged during the COVID pandemic, from rising costs and supply chain shortages, show no signs of abating. Evolving consumer preferences for value, convenience and healthy foods continue to push retailers to adapt both the products and the shopping experience they offer customers. New entrants and partnerships are accelerating disruption and competition in the ecosystem, forcing retailers to navigate an ever-more complex landscape to stay profitable and keep customers loyal.
Retailers are responding by investing in innovations that both improve the consumer experience and streamline operations throughout the supply chain. McKinsey reports that grocers have increased their capital spending by 2.3X relative to historical levels, and Progressive Grocer’s annual survey reveals that 54% of grocers are increasing their annual tech spend this year. But retailers cannot innovate fast enough on their own, and increasingly look to external partners offering tailored solutions for the industry.
Enter the rising food-tech industry. Based on Pitchbook data, VC firms invested more than $39 billion in food-tech companies in 2021, up 150% from 2020, with more than half of those dollars going into the top two categories of online grocers and apps & marketplaces. Hundreds of startups are also creating new categories of consumer products (e.g. alternative proteins, meal solutions, etc.), adapting disruptive technologies for the retail environment (e.g. vision-based technology, robotics and AI), and transforming the way that food is produced (e.g. controlled environment agriculture), protected (e.g. shelf life extension) and distributed (e.g. freshness monitoring).
Here are a few areas where retailers are launching partnerships to deliver game-changing innovations:
Omnichannel shopping & quick delivery: 47% of Americans buy groceries online at least some of the time, with increasing preference for scheduled and instant delivery. To meet delivery demands, some grocery retailers are expanding investment in automated micro-fulfillment centers, such as Kroger with Ocado, and Walmart with Alert Innovation, Fabric and Dematic, while others are partnering with quick delivery apps who will operate dedicated warehouses on their behalf, such as Publix with Instacart and Loblaw with Doordash in Canada. Many grocers are leveraging data to personalize the shopper experience across channels, such as Albertsons with Google and Adobe.
Smart stores: The in-store experience is also going high tech, with retailers leveraging advances in computer vision, AI and robotics to provide a more seamless customer experience, streamline operations and reduce labor costs. Amazon Fresh pioneered the checkout-free experience with its “Just Walk Out” technology, while Albertsons has deployed self-checkout carts with Veeve and Wakefern is piloting a fully autonomous digital store with Trigo. Many grocers are also looking to robotics and AI to help with inventory management. Sam’s Club is working with Brain Corporation and Hy-Vee with Simple Robotics to introduce robots that collect data on out-of-stocks and pricing accuracy, while Albertsons launched Afresh Technologies’ AI-powered fresh operating system to optimize forecasting, ordering and inventory management.
Healthy, local & meal solution offerings: 40% of consumers are increasing their focus on healthy eating, with “local” and “natural” foods topping the list. In parallel, consumers are eating more at home, with meal kits and prepared meals rising in popularity. Retailers are using a variety of strategies to expand their product offerings in line with these trends. Kroger partnered with Market Wagon to create an online farmers’ market, while launching its Go Fresh & Local Supplier Accelerator to discover new suppliers. Sprouts has teamed with Pod Foods for discovery and fulfillment of emerging natural brands. Meanwhile, Walmart invested in Plenty to bring indoor-farmed produce to its shelves, invested in Sustainable Beef to ensure higher quality, traceable beef in its stores, and partnered with Blue Apron to offer meal kits via its online marketplace. Both Kroger and Walmart have also launched “virtual food courts”, Kroger with Kitchen United and Walmart with Ghost Kitchen Brands, to sell freshly prepared meals from third-party restaurant brands.