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  • Writer's pictureJake Pruchno

The Future of Grocery

Grocery stores aren’t sexy. Grocery news doesn’t make the front page of the Wall Street Journal or the cover of Forbes magazine. Upstart companies in food delivery, meal kits, and plant-based meat dominate headlines.


Through it all, the $675+ billion American grocery industry chugs along. Grocery focused tech companies have come and gone. The internet has disrupted nearly every industry, but grocery stores have remained relatively unscathed. Grocery delivery companies began appearing in the 1990’s but started in earnest in the 2010’s and still haven’t become ubiquitous. Coronavirus induced demand hasn’t been enough to push companies to profitability.


As software eats the world, why have grocery stores been inedible? There’s no shortage of meal and grocery delivery companies, but none have changed our weekly routine at the grocery store. After Covid-19 passes it’s likely we’ll return to in-person grocery shopping. What might change our grocery habits? What does the future of grocery shopping look like?

 

In the early 1900’s, grocery stores were small and housed a limited selection of items. These grocery stores operated less efficiently than today. Customers walked to the counter and gave the clerk a list of food, and the clerk ran around the back counter collecting the desired items.


In 1916, a young grocer named Clarence Saunders opened a grocery store in Memphis that turned the traditional shopping model upside down. Piggly Wiggly was the first grocery store where shoppers gathered their own goods. With fewer employees and lower costs, Piggly Wiggly was able to offer lower prices. With the store’s success came copycats, and the modern grocery store experience emerged. It also elevated the importance of product placement, packaging, and brand recognition in the grocery store (Note 1).


Twenty years later, a grocer named Sylvan Goldman realized that customers checked out when their hand-held basket was full of product. He created the first shopping carts to increase his store’s sales (Note 2). Around this time, King Kullen opened in Queens. King Kullen is considered the first modern supermarket, exemplified by its “separate departments; self-service; discount pricing; chain marketing; and volume dealing” (See Note 3). Supermarkets like this began to dot the American landscape.


Since then, grocery stores added more expansive refrigeration, in-house deli’s and prepared food buffets. Inventory management, POS software, and supply chain logistics have become more advanced and efficient. However, despite these advancements, the experience is largely the same. You walk in. You gather items yourself. You wait in line and check out.


Start-ups are trying to change the way we shop for groceries. There’s no shortage of companies offering à la carte grocery delivery or meal kits. Even established grocery stores, without the risk appetite of a VC-backed start-up, are trying to innovate with programs like click & collect.


DoorDash, Instacart, and Postmates, among others, have tried to solve the logistics puzzle that is grocery delivery at scale. It’s difficult. Margins are thin and customer expectations are high.


Blue Apron, Hello Fresh, and various others tried to attack the grocery industry with subscription meal kits. It hasn’t worked. Consumers don’t want to decide their meals a week early, and the price tag isn’t worth the convenience of pre-gathered and portioned ingredients. Ironically, meal kits seem to be catching on without required subscriptions. Albertson’s and Kroger both acquired meal kit delivery companies and began selling kits in store. Walmart and Publix offer a similar in-store product.


Kroger, Walmart, and Target all offer click & collect programs. If you order online, an employee will gather your items and bring them to your car when you arrive. These programs are increasing in popularity. According to Nielsen, click & collect represented 18% of online grocery spending in 2016, and by 2018 it represented nearly 50%. Yet it remains a small sliver of the grocery market.


Why hasn’t technology taken off in this space yet? The internet has changed the way we shop for everything else, but the physical grocery store is still our default for food.


Ordering groceries online is tricky. Packaged foods are shelf stable and consistent from store to store. Fresh foods are different. We like to inspect our fresh fruits, vegetables, meats and fish before throwing them in the cart. Small bruises or discoloration helps us determine what is good and what should be avoided. Online you can’t tell.


That’s part of the reason online grocery adoption is slow. Before coronavirus, only 16% of US adults had tried online grocery ordering, and only 4% ordered groceries online once per week. Delivery fees and food quality are other parts of the story. Only time will tell if coronavirus will push online ordering into mainstream adoption.


There is one piece of our grocery routine that’s changed over the years. Paying for our food. Over the years we’ve transitioned from cash to credit card. Barcodes and scanners became important technology to speed up the checkout process and manage inventory. Today, mobile payments are becoming more common.


Then there’s the dreaded self-checkout machine. It’s become common at grocery stores, but the experience is miserable. Few things are as frustrating as waiting behind someone who hasn’t memorized the keystrokes. Worse still is listening to the machine repeatedly chirp “unexpected item in the bagging area”. There’s some evidence that frustration with self-checkout machines lead to more shoplifting.


Self-checkout was once the future, yet projections for self-checkout adoption are consistently wrong. From a Vox article about self-checkout:


“Experts then predicted that number [of self-checkout machines] would rise to 325,000 by 2019, but by 2016 there were only 240,000 and numbers were revised again. Most recently, the BBC has predicted there will be 468,000 by 2021. We’ll see, but there are still less than 300,000 worldwide right now, and seemingly everyone hates them.”


Nobody picks one grocery store over another because it has a self-checkout machine. Nobody leaves a grocery store after romanticizing about what a wonderful check-out experience they had.


Enter Amazon. In 2018, the e-commerce behemoth introduced their first Amazon Go convenience store. Two years later, they opened the larger Amazon Go Grocery concept in Seattle’s Capitol Hill neighborhood. Both store types feature Amazon’s Just Walk Out technology. It's magical. Customers walk in and scan their phone, grab their items, and walk out without wasting time checking out. Unlike minor improvements to self-checkout machines, Just Walk Out technology is a 10x improvement over any brick-and-mortar checkout experience.


There are still lingering questions. The Amazon Go convenience stores range from 450 to 2,700 square feet. The Amazon Go Grocery is larger, at 7,700 square feet of shopping space and about 5,000 unique items. The Just Walk Out technology is still a work in progress, and it’s unclear how easily it would scale to 40,000 square feet, the typical size of a US grocery store.


With self-checkout disappointing consumers and failing to grow as quickly as analysts predict, it’s very possible that Just Walk Out replaces traditional and self-checkout as our default. On JustWalkOut.com, Amazon is touting that they’re willing to install and service the technology to other retailers. Reuters reports that Amazon “has ‘several’ signed deals with customers it would not name”. Most grocery and retail stores should consider it. Just Walk Out will likely increase sales and customer satisfaction.


Just like Fulfilment by Amazon and AWS, Amazon has built out unrivaled technology and logistics systems and will make a financial killing by sharing it with the world. Of all the grocery and shopping technology available today, Just Walk Out promises to be big. It will change the shopping experience, and it will transform our economy.

 

Just Walk Out is the tip of the iceberg. It makes fears of automation hit home. If Just Walk Out does become a big part of grocery and retail in the coming years, there will be significant workforce consequences. Cashier and retail salesperson are two of the top three most populous jobs in the US, employing over 8 million people. Certainly, some of these jobs will disappear as automation and technology replace some current roles.


It’s also an opportunity. Employees will be freed to perform more complicated tasks. When ATM’s were introduced there was widespread fear that bank tellers would be completely replaced. The opposite happened. ATM’s were able to handle the repetitive task of dispensing and depositing money. Bank tellers began working on cognitively harder problems like selling new accounts or providing comprehensive account servicing. Fewer bank tellers were needed per branch. As the cost to operate a bank branch fell, banks opened more bank branches and employed more tellers overall.


A McKinsley report notes that jobs are more likely to be redefined than eliminated. Across a broad spectrum of low-skill to high-skill jobs, including financial managers and senior executives, they note that “as many as 45 percent of the activities individuals are paid to perform can be automated by adapting currently demonstrated technologies”. This sounds scary. However, “fewer than 5 percent of occupations can be entirely automated using current technology”.


Jobs will adapt and evolve. How might a cashier-less grocery store utilize staff? How might our grocery experience change in the coming years?

Customer Service

The result of cashier-less stores will be higher customer service. Most employees at a grocery store are busy at the checkout registers. Automated checkout means stores can train employees to help in other areas. Maybe this means more staff at deli counters preparing sandwiches, allowing the store to service more customers during at lunch hour.


Sometimes it’s hard to find that one item you’re looking for. With extra staff available, perhaps employees will be able to help find items faster. This would be a whole lot more helpful than gesturing toward aisle twelve and leaving customers to search themselves.

Sales

Freed from the chain of the cash register, employees would have more availability to do actually sell products. With over 40,000 items in the grocery store, there’s a lot of products you haven’t tried yet. Stores could increase sales by having a knowledgeable employee teach you about new products and make suggestions.


Samples are another powerful way stores could boost sales. Like Costco, supermarket employees could give away samples and educate customers about products they wouldn’t have tried otherwise. Kroger does something like this with its Murray’s Cheese kiosks inside their stores.

Personalization

Unlike shopping online, physical shopping is the same experience for everyone. The stores use data to optimize for sales, but they can’t personalize it real-time as you shop.


Amazon Go uses an app to scan you into the store. This brings a whole world of personalization possibilities into grocery for the first time. Employees suggesting wine would be able to view your past preferences, and algorithms could help you discover new products based off what you’ve liked in the past. You could be notified that your favorite fruit is on sale, prompting you to visit the store.


This could easily apply to retail as well. If you visit a retailer that uses Just Walk Out, they will have immediate access to your preferences and history without needing to look up your account. Imagine going to a clothing store where the associate already knows your size and what styles and brands you like. Rather than replacing retail salespeople completely, this technology could augment their jobs.

Online grocery

Online grocery will continue to grow. An Atlantic article from 2019 quotes a Deutsche Bank report that "22% of apparel sales and 30% of computer and electronics sales happen online today, but the same can be said for only 3% of grocery sales”. Most analysts predict that online grocery will continue to grow at a double-digit pace for the next several years.

Autonomous vehicles could lower delivery costs. Better logistics for choosing and packing groceries could close the gap between consumer expectations and reality.

 

There will always be in-person grocery stores. Although online grocery is growing, we clearly still prefer going to the actual store. There's still lines at Costco and Trader Joe's despite mandated social distancing.


Just Walk Out may take over brick-and-mortar. It might not. There could be something new that changes our grocery routine. There’s sure to be something innovative at Amazon’s new grocery store in California. Amazon says the store will feature conventional checkout and will be independent from their Whole Foods brand.


Clarence Saunders was ahead of his time. Later in his career, the Piggly Wiggly founder tried and failed to develop automated store concepts called the Keedoozle and Foodelectric. He’d be blown away with the Just Walk Out technology. He’d be in awe of the ability to order groceries from home and have them delivered. But overall, he would probably recognize the bulk of our grocery store experience.


Groceries don’t have to be uncool. Though grocery stores don’t usually make headlines, they’re probably the most common brick-and-mortar store you visit. And it’s likely that you’re going to continue to visit the grocery store in person. While your shopping experience may be largely the same, your checkout experience may be changing soon.

 

Note 1: Piggly Wiggly was also the first to mark prices on every item.


Note 2: Sylvan Goldman had immense push-back from customers. Men were insulted that he insinuated they weren’t strong enough to hold their goods. Women didn’t want to push a glorified baby carrier, with one woman allegedly saying, “I’ve pushed my last baby buggy.” Goldman solved this by hiring several attractive men and women to shop with the carts. They demonstrated how the carts should be used and applied peer pressure to actual customers coming into the store.


Note 3: Michael J. Cullen was a former Kroger employee. He wrote to a Kroger vice president describing his vision for a much larger grocery store that could offer lower prices to customers. When his letter went unanswered, he opened King Kullen in Queens.

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