Grocery is thriving, but sustained success will require tech and a fresh plan
In 2020, major grocery chains including Walmart, Target, Albertsons and Kroger saw steady revenue increases, with roughly 10 percent year-over-year growth. Not surprisingly, online revenue jumped even more dramatically – exceeding 240 percent for some grocers. While these gains are encouraging, we are far from the end of the crisis. Harder times are expected, and reports indicate grocery revenue could fall sharply if grocers don’t stay ahead of the still changing market.
A recent study forecasted that the rate of growth in grocery could slow by up to 7 percent as the pandemic is brought under control. The online grocery wars are also heating up, adding even more uncertainty to the industry and making it increasingly difficult for mid-size stores to compete with the likes of Amazon and other major chains.
The events of this year caught retail and grocery by surprise, but the roll-out of experimental or nascent offerings including curbside service and widespread online ordering were rapidly accelerated. For the time being, these approaches have worked for grocers. But to ride out the remaining wave of the coronavirus pandemic and continue growing revenue even after life begins to return to normal, grocery stores must start to embrace additional innovations.
Below are four tech-driven innovations that will help the industry hold on to the increases from the past year and continue growing despite ongoing downward economic pressures.
- Predictive technology and automated ordering. AI has become essential to inventory planning and smarter buying. AI can do a much more accurate job than humans at forecasting sales volume during uncertain times and adjusting orders accordingly. A prime example is the mass toilet paper shortage many stores experienced earlier this year during pandemic panic shopping. Many store buyers didn’t believe the situation would be as extreme as the technology was predicting and overrode automated ordering systems. Data from our customers shows that predictive forecasting and automated ordering can increase gross margins by up to 30 percent. The key is for buyers to trust the technology.
- Improved delivery auditing. The disruption in the food chain has left suppliers scrambling to meet demand. In some cases, they are unable to deliver 100 percent of the product ordered. If stores aren’t auditing deliveries, they may be getting shorted without realizing it. This can quickly cannibalize margins and create confusion in inventorying and buying. The disruptions of this year have provided a stark reminder of the importance of managing supply and maintaining strong auditing processes – which are made significantly easier with software solutions and inventory management technology.
- Merchandising to optimize sales and reduce waste. The volume of food wasted at most grocery stores remains grossly underrepresented in the industry. Many grocers calculate food waste in the low teens, while in reality, they are likely wasting somewhere between 35-50 percent of their perishable SKUs. The first step to reducing shrink is recognizing that this is a $160 billion problem in the U.S. alone, and won’t go away without significant changes to the way waste is tracked and reported, as well as how fresh food is merchandised. Ensuring first-in, first-out (FIFO) merchandising is critical. An easy measurement is for buyers to use analytics to determine whether more than 5 percent of their SKUs are compliant with FIFO. If they are above this range, there’s an opportunity to recover potentially tens of thousands of dollars in revenue at the individual store level by making simple merchandising adjustments.
- Scan-based trade. Grocers can hedge against volatility in consumer demand by exploring scan-based trade models and tech that provide an alternative to simply throwing away expired food. With scan-based trade, suppliers maintain ownership of inventory rather than the retailers themselves, so anything that doesn’t sell is tracked and “bought back,” ultimately removing shrink (from spoilage, breakage and theft) from the margins. When supported by technology that examines buying trends, predicts demand and informs grocery buyers exactly how much to order, this approach makes it possible to keep shelves well-stocked while virtually eliminating the cost of shrink.
A secondary yet significant benefit of the scan-based approach is that food no longer fit for retail shelves can be donated to local schools, food banks and homeless shelters. Suppliers that partner with nonprofits such as Feeding America and ReFED play an important role in simultaneously reducing food waste and food insecurity. Grocery stores have an ethical responsibility to play a role in solving these problems, especially with so many people in our country facing dire economic hardships.
Consumer demand has always been a constantly moving target, but it has become even more unpredictable with the pandemic and subsequent economic fallout. If the past year has taught the industry anything, it’s that transformation is here and embracing it is the only way forward. Grocers that get serious about addressing shrink via technology and new approaches to ordering will have a significant leg up on sustained growth, even amidst cutthroat competition.
Stefan Kalb is the co-founder and CEO of Shelf Engine. Kalb started his career in the food industry in 2009 when he founded Molly’s, a grab-and-go food company. While growing Molly’s to more than 400 regional retail locations, he discovered the problem of food waste first hand. Hungry for a better solution, he co-founded Shelf Engine in 2016. Kalb feels most inspired at Shelf Engine when he gets to witness the numbers reflecting a reduction in waste and the immediate positive impact that has on customers.