Innovations driving growth in grocery amid crisis

By Stefan Kalb, Shelf Engine

Sponsored by Shelf Engine - automated ordering for full shelves and zero shrink.

Despite the many challenges brought on by the pandemic in 2020, grocery was one of the few industries to experience growth rather than a major decline. Most notably, major chains like Walmart, Target, Albertsons, and Kroger saw a nearly 10% year-over-year growth increase, while ecommerce revenue jumped a whopping 240% for some grocers.

While these gains are promising in the short-term, it’s critical to remember that our current global crisis is far from over and hard times are still expected for grocers if they fail to stay ahead of shifting demand.

This is evident in a recent study, which found the rate of growth in grocery could slow by up to 7% as the pandemic is brought under control and restaurants begin to recover. The online grocery wars are also heating up, adding another layer of uncertainty to the industry and making it increasingly challenging for mid-size stores to compete with juggernauts like Amazon and other major chains.

The events of the pandemic caught retail and grocery by surprise, but the rollout of experimental or nascent offerings like curbside service and widespread online ordering were rapidly accelerated. For the time being, these approaches have worked for grocers.

But in order to survive the remaining wave of the coronavirus pandemic, and continue growing revenue even after the world begins to return to normalcy, grocery stores must start to embrace additional innovations.

One tech-driven innovation that has become increasingly popular is predictive technology and automated ordering. AI has become essential to inventory planning and smarter buying, as it 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 in Q1-2020 during pandemic panic shopping. Many store buyers didn’t believe the situation would be as extreme as their technology was predicting, and overrode computer-assisted ordering systems. Data from our customers shows that predictive forecasting and automated ordering can increase gross margins by 30-50%. The key is for buyers to trust the technology.

Another innovation grocers should be adopting is improved delivery auditing. The pandemic’s disruption of the food chain has left suppliers scrambling to meet demand. In some cases, they are unable to deliver 100% 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 is yet another key innovation grocers must adopt to remain profitable. The volume of food wasted at most grocery stores remains grossly underrepresented in the industry. Many grocers calculate food waste as less than 15% while in reality, they are likely wasting 30-40% of their highly 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 also critical. An easy measurement is for buyers to use analytics to determine whether more than 5% 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. 

Lastly, scan-based trade has become a lifeline for grocers looking to hedge against volatility in consumer demand and for 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 the margins. When supported by technology that examines buying trends, predicts demand, and informs grocery buyers exactly how much to order, this model makes it possible to keep shelves well-stocked while eliminating the cost of shrink even during a crisis.

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 retail 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. Stefan started his career in the food industry in 2009 when he founded Molly’s, a grab & go food company. While growing Mollys to over 400 regional retail locations, he discovered the problem of food waste first hand. Hungry for a better solution, Stefan co-founded Shelf Engine in 2016. Stefan 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.