Grocery store technology hasn’t changed much in decades, so when the pandemic hit, it served as a wake-up call to the industry, highlighting its shortcomings, especially concerning e-commerce. Grocery stores that don’t adapt will most likely lose out on market share.
The good news for the grocery industry is that technology advancements in recent years, particularly in the area of computer vision, are giving startups a shot at providing grocery stores with e-commerce-like features in a brick-and-mortar setting.
And venture capital is here for it. Investors say computer vision, along with frictionless checkout and inventory management tools, are revolutionizing the grocery industry and will eventually impact the larger future of retail.
Bagging capital and expanding footprints
Grocery tech is attracting VC activity for a few reasons: For one, grocery retail is such a large market — a $1 trillion industry that is poised to grow 3% each year for the next eight years, according to Grandview Research.
Prior to the pandemic, about 3% of that trillion dollars came from online sales. That has now grown to 8%, said Elaine Russell, Greycroft principal and co-lead of the Albertsons Fund, a $50 million fund started by Greycroft and the grocery chain in 2018 to invest in the future of retail and next-generation retailers.
Another is that e-commerce’s share of the grocery market is expected to be between 10% and 20% by 2025, Russell told TechCrunch.
“That type of shift in hundreds of billions of dollars shakes up an entire industry and shines a light on glaring holes and issues that large retailers need to fix,” she added. “Change brings about innovation and opportunity, and grocery is a good test, in a way, for the industry because most of the technologies used in grocery can be applied to other retailers as well.”
Yearly venture capital investment figures were a bit difficult to ascertain specifically for grocery tech, mainly due to investments in food delivery companies and food tech being grouped together.
But it’s clear that a lot of money has poured into this space within the past six months. For example, fresh food technology provider Afresh announced last week a $115 million Series B round led by Spark Capital.
The company is tackling food waste and plans to be in 10% of U.S. grocery stores by the end of 2022, buoyed by deals with grocery chains like CUB and Albertsons, with plans to roll out in over 2,300 Albertsons stores later this year. Freshflow, Flashfood and Smarter Sorting also raised capital this year for their approaches to reducing food waste in grocery stores.
A few other big rounds include $150 million into Firework for its livestream commerce technology. Coincidentally, last October, Albertsons was the first U.S. grocer to utilize Firework’s platform to create, host and curate its own short-form and livestream video for the Albertsons brand websites and app to improve customer engagement.
Meanwhile, Swiftly raised $100 million in Series B funding to help brick-and-mortar stores capture some of that e-commerce customer experience. Foxtrot grabbed $100 million of its own in Series C dollars to develop digital experiences for convenience stores.
Other deals we noted include Vori, which this week raised $10 million to digitize manual tasks in stores; Shopic, which raised $35 million this week for its smart cart technology; and Crisp, a supply chain technology to combat empty shelves, which took in $35 million in Series B funding earlier this year. Meanwhile, Clerk bagged $30 million in Series B for its Grocery TV tool for in-store promotions.
Tech tech evolution
Two of the biggest challenges facing grocery stores are demand for online ordering and delivering better in-store experiences, Matt Nichols, retail partner at Commerce Ventures, told TechCrunch.
Grocery delivery gained popularity while we were all locked in our homes over the past two years, forcing stores to figure out last-mile and delivery. However, they also had to manage the huge percentage of orders being selected by their employees and then picked up at the store by customers.
“They have an incentive to find ways to be profitable and to keep consumers coming into the store,” Nichols said. “A big pain point is the fact grocery is a low-margin business. Consumers were doing a big part of the labor, for example, picking their baskets. So the challenge became, what do you do if consumers are no longer picking their own baskets? And then what’s the technology that will allow grocers to be able to deliver efficiently and give a great customer experience?”
For him, the answer could be micro-fulfillment tools enabling people to be more productive at picking items from aisles. Unfortunately, the early technology along those lines was expensive and only worked in certain situations; for example, in really dense locations, he explained.
However, in the past few years, Nichols saw a new set of players coming in that are building lower-cost versions of micro-fulfillment tools. An example of venture capital investment in this area is Fabric, which raised $200 million at a $1 billion valuation in 2021 to help e-commerce companies compete with Amazon.
Inventory management is also becoming an important factor in grocery store operations. At this point, you’ve likely created an online grocery order only to be contacted with news that a particular item is not available, meaning there is a disconnect between the online ordering system and what’s on the shelves.
“There’s a huge amount of innovation happening in better detection of what’s physically on the store shelves,” Nichols said. “Historically, people have tried to rely on just sales data and inventory data, but it is not that good.”
Much of the advancement in this area has been with computer vision and camera technology that can scan the store and understand what’s there. Not that far away is an augmented reality overlay where the picker or consumer will have the store’s aisle up on their phone and boxes will appear around the product they need to pick up, Nichols said.
What’s next
Meanwhile, more cashierless and frictionless stores are coming online, with many racing to keep up with Amazon, which opened its first cashierless grocery store in 2020. This week, the logistics giant added palm scanning payment technology to more Whole Foods locations.
Also this week, AiFi, which raised $80 million earlier this year, marked a milestone of having its autonomous shopping solution in 80 retail stores worldwide. Nourish + Bloom opened its doors in Atlanta, and Aisle 24 opened new cashierless stores in Canada.
Alastair Mitchell, partner and co-head of the venture advisory team at EQT Ventures, an investor in Standard Cognition, said technology that the computer vision company and others are working on “is magical.” Standard Cognition has raised over $230 million, according to Crunchbase data, and over the years has acquired companies in the checkout and computer vision space, most recently ThirdEye Labs.
What gets Mitchell most excited about what Standard Cognition is doing is that the technology is addressing many of the headaches grocery stores have, from seeing what people do with products — just picking them up and examining them or putting them in the cart — to providing on-the-spot promotion advertising, inventory management and protection against theft.
“It’s honestly mind-boggling, the complexity of working out what you’re doing,” he told TechCrunch. “Then you’ve got to be able to then accurately charge for it. They just painted a picture of what a store in the future could look like.”
And that could look like different things. For example, walking in, picking up your items and walking out. Writing a list and then learning from the store whether the item is in stock or on sale. If you’re out walking the dog, your phone could alert you when you pass by a store that it has the product you buy each week on sale. Or, you have a personal shopper; they are told exactly where products are located when they go into the store, and the customer is charged instantly.
Though automated checkout still has some growing to do — it can take something like half an hour to get a final receipt because humans are double-checking cameras — Mitchell, Russell and Nichols said many of these technologies have matured enough that mainstream use is closer than we think.
Technology in grocery stores is aimed at making both consumers’ and companies’ experiences better, but Nichols said consumers do still enjoy some of the manual ways of shopping, like browsing for their own meat or produce, and so tech coming online will have some hybrid features to them.
In addition to camera vision technology, Russell sees data analytics, and the AI predictive models around it, improving. That will mean better pricing models and control over products to reduce the number of out-of-stocks. She referred to demand planning as “the holy grail,” meaning the better a grocery store got at planning, the less it would run out of products.
“This is a process that some grocers are starting to adopt where it works best for their top 10% SKUs,” she added. “In addition, if you know that typically in a certain store you sell 10 apples every hour, on average, when you see zero apples sold in one hour, you will know that your apples need to be checked.”
While grocery stores figure out their next move here, one thing’s for sure: Investors forecast that whatever happens in grocery stores will ultimately find its way into retail of all shapes and sizes.