2020 Grocery Innovation Outlook
Innovation in food retailing is everywhere and advancing at a pace so rapid that companies that are considered disruptors question whether they’re moving fast enough, while others wonder whether they can catch up.
Key Takeaways
- Technology is changing every aspect of how food retailers operate, while fast-moving trends related to consumer behavior, product preference and spending motivations are having a huge impact on sales.
- Drones, omnichannel, robotics, electronic shelf labels, cashierless stores, artificial intelligence and gamification are among the tech developments that grocers should keep an eye on.
- The rising popularity of plant-based foods, ensuring the local provenance of products, and the ongoing importance of sustainability are among the consumer trends that supermarkets must contend with.
Wherever a company is on its innovation journey, retailers of all types have awoken to the reality that disruption never sleeps and is coming at them on two fronts: Technology is changing every aspect of how food retailers operate, while fast-moving trends related to consumer behavior, product preference and spending motivations are having a huge impact on sales.
With more change ahead, Progressive Grocer offers its 2020 Innovation Outlook to help retailers get ahead of what’s next.
One thing that’s abundantly clear when looking across the food retailing landscape is that there’s innovation as far as the eye can see. Entrepreneurs and startups intent on disrupting the food retailing world are dissecting every touchpoint on the shopper’s path to purchase, looking for pain points they can solve. Meanwhile, established retailers are doing the same, but with a heightened sense of urgency in recognition of the fact that their survival is at stake.
Retailers have learned — some the hard way — not to be dismissive of a particular technology or trend that initially appears absurd, insignificant or impossible to profitably scale. Look at drone deliveries and plant-based proteins, for example. Both were relative novelties just a few years ago, but not anymore. Plant-based startups, most notably Impossible Foods and Beyond Meat, sport billion-dollar valuations, major CPG companies are racing to launch new brands, and retailers such as Kroger are right with them in rolling out store-brand options.
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Meanwhile, drones have entered retailers’ supply chain planning conversations, moving beyond an “if” to more of a “when” stage as a legitimate fulfillment option. When is now for some retailers. Deerfield, Ill.-based drug store chain Walgreens conducted its first drone delivery from a store in Christiansburg, W.Va., on Oct. 18 in partnership with the Wing subsidiary of Google’s parent company, Alphabet. Not to be outdone, fellow drug store operator CVS Pharmacy completed its first drone deliveries in Cary, N.C., on Nov. 1, in partnership with UPS Flight Forward.
“CVS is exploring many types of delivery options for urban, suburban and rural markets. We see big potential in drone delivery in rural communities, where life-saving medications are needed and consumers at times cannot conveniently access one of our stores,” says Kevin Hourican, president of Woonsocket, R.I.-based CVS Pharmacy.
Walgreens and CVS drone deliveries followed a Sept. 27 landmark decision by the Federal Aviation Administration that gave UPS Flight Forward approval to operate the nation’s first drone delivery network that doesn’t require operators to maintain line of sight with the drones. The certification means that UPS can operate drones where the combined weight of the vehicle and cargo doesn’t exceed 55 pounds, a threshold that creates interesting implications for grocery.
“This is history in the making, and we aren’t done yet,” David Abney, CEO of Atlanta-based UPS, said when FAA approval was granted.
Although initial use cases are focused on health care and time-sensitive deliveries in controlled environments with fixed routes, Abney said that UPS will be looking at new uses in the future as it builds out its drone infrastructure. Grocery is certainly one of those uses, even if the financials don’t make sense and there isn’t a clear path to profitability. Those factors won’t deter drone development any more than unfavorable economics discouraged food retailers from racing to implement costly store-based fulfillment of online grocery orders because shoppers demanded the convenience.
Witness the success of click-and-collect services that quickly became commonplace and are now being refined. Major chains such as Walmart, Kroger and Target rolled out the service at a breakneck pace over the past few years and ended 2019 with near-chain-wide availability. Other retailers also point to the success of click-and-collect as a primary driver of their digital growth, with a familiar theme emerging: Customers love it, and average transaction sizes increase.
Now, the fact that shoppers are thrilled with a service that lets them avoid setting foot in a store doesn’t say much about food retailers’ efforts to achieve a competitive advantage by elevating the store experience. However, in a world gone digital, the concept of store experience has been turned on its head to include interaction with a smartphone screen and a friendly employee placing reusable bags in the back of an SUV, along with more familiar components such as a compelling fresh presentation and a helpful butcher.
Omnichannel Comes of Age
As click-and-collect has become a core capability essential for grocers to remain competitive, a huge opportunity exists in 2020 for retailers to increase usage of the service and secure customer loyalty.
For example, a recent IDC Retail Insights survey, sponsored by Toronto-based loyalty solutions provider Precima, indicated that online shopping for groceries isn’t currently on the radar of one-third of consumers. At the other end of the spectrum are the 8% of shoppers who reported buying food primarily online.
“The good news for retailers is that more than half of consumers say that when they shop online, they prefer the website of their primary grocery store. However, Amazon is close behind that figure, and on the mobile front, consumers prefer them equally to their primary store,” says Jon Duke, research VP at Framingham, Mass.-based IDC.
To expand usage of click-and-collect, innovation is occurring in how shoppers engage with the service, creating a convenience utility for how people execute life’s basic chores. Voice-enabled ordering is a key area where innovation will continue to transform the path to purchase.
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For example, in November, Bentonville, Ark.-based Walmart added Apple’s Siri to the voice assistant services that shoppers can use to create lists and order groceries for pickup or delivery. The beauty of voice services, at Walmart or elsewhere, is that they get smarter over time, recognizing what customers mean when they say “add milk” or “add dog food,” because they tap into purchase history to understand the intent of those statements. And to literally take things a step further, don’t be surprised if 2020 sees Walmart expand a test of in-home delivery that it recently implemented in Pittsburgh, Kansas City, and Vero Beach, Fla.
Fulfilled by Robots
The real 2020 innovation battle is heating up between the centralized-fulfillment-of-online-orders approach favored by Cincinnati-based Kroger versus the more store-based micro-fulfillment-center strategy favored by the rest of the industry. Kroger’s partnership with U.K. online food retailer Ocado will continue to take shape in 2020, when the first of the company’s massive automated fulfillment centers, known as “sheds,” could become operational late in the year. Twenty of the facilities, which each measure up to 350,000 square feet, are planned; six locations have been identified and construction is well underway on two locations in Ohio and Florida.
When the facilities become operational, which Kroger maintains will be in 2021, the company will achieve close to 100% order accuracy, which bodes well for customer satisfaction and repeat purchase, Chief Information and Digital Officer Yael Cosset said during the grocer’s November investor conference. Another key advantage is relieving pressure on stores by removing or greatly reducing the costly and inefficient process of order picking from stores.
While centralized order picking offers benefits, increasingly affordable robotics and precision handling systems employed by other retailers will give Kroger a run for its money. Grocers such as Wakefern Food Corp. banner ShopRite and Albertsons are betting — at least partly — on smaller micro-fulfillment centers connected to stores. In 2020, expect to see tests of more fully integrated approaches to the marketplace. Innovations such as what technology company Alert Innovation calls Novastore, or what fellow tech providers Pulse Integration and Locai call Omni-Store, combine automated warehouses and traditional shopping areas within the store footprint.
The Store is the Core
Retailers won’t lose sight of the physical store as a platform for innovation, but some of what passes for innovation in U.S. stores will look familiar to international visitors.
For example, electronic shelf labels (ESLs) are nearing the point where their widespread usage in the United States begins to make sense, due to increased labor costs, which is a key reason that the technology is more prevalent in Europe. Don’t be surprised if Ahold Delhaize is among the first to deploy ESLs in the United States. In 2019, the Zaandam, Netherlands-based company partnered with Chinese technology provider Hanshow to deploy ESLs to all of its European stores, following a brief pilot program.
With shelf-edge technology improving the shopper experience, a tremendous emphasis remains on solving the most friction-filled aspect of physical food shopping: the checkout process. There are now 21 cashierless Amazon Go locations in Seattle, San Francisco, Chicago and New York, with four more slated to open. These locations may be setting new shopper expectations, but other retailers are quietly working on cashierless variants. Ahold Delhaize USA has opened a cashierless pilot store, developed in partnership with UST Global and Intel, at its Retail Business Services headquarters in Quincy, Mass. Inside the store, artificial intelligence detects which products are being removed from shelves, and body skeletal tracking connects the right products to the right shopper and their method of payment, according to the grocer.
Giant Eagle, based in Pittsburgh, and checkout-free technology company Grabango have partnered on a no-wait customer experience at a pilot store that relies on computer vision and machine learning to track shopped items. It lets customers shop as they normally would and not have to scan items before leaving. Other retailers are experimenting with or have implemented systems that are app-based and essentially shift the checkout process to the aisles, where shoppers scan merchandise as it’s placed in their carts, and then present a code upon exiting the store.
While cashierless checkouts remain a work in progress, other innovations focused on improving employee communication have the opportunity to help retailers do more with less and improve the shopper experience.
“Heads up and hands-free” is how Chris Todd, CEO of Theatro, describes the core value proposition of the company’s voice-controlled mobile platform. The intelligent assistant system lets employees access information in enterprise systems with voice commands or connect with other employees without having to tap on a screen or otherwise be distracted from customer service functions. The Dallas-based company got its start with The Container Store, but in 2020, Walgreens will roll out the technology to all of its nearly 10,000 U.S. stores.
Invisible Innovation Abounds
Much of the innovation happening in food retail is transparent to shoppers, who know only that their store or online experience is better, products are fresher and promotions are more relevant. Underpinning continued improvement is a foundation of data, artificial intelligence, and a shift in organizational structures and operating philosophy. Organizational structure isn’t an area normally viewed as a source of innovation, but market leaders continue to make key personnel moves to expand the horizons of senior leadership and become more data-driven.
“There’s a shift that is happening where retailers are moving from supply chain organizations to data-run organizations,” says Brian Crain, head of global business development with Precima. “The supply chain capabilities are there, they’re sound, they’ve been built and they’ve been optimized. Now winners in retail are absolutely embracing data, and it’s not just in marketing and merchandising, it’s everywhere throughout the organization.”
Marketing will remain a key area of focus, due in large part to retailers’ recognition that their growing digital business makes them every bit the media platform that Amazon and other large retailers are. In the data-driven world of consumer marketing, the opportunity to reduce or eliminate ineffective or unnecessary promotions is an area rich with innovation. It has some in the industry predicting that 2020 is the year the long-forecast demise of the print circular becomes reality. Steven Boal, CEO of Mountain View, Calif.-based Quotient Technology, is among those who believe that the industry is at a tipping point.
“Through collaborative planning, CPGs and retailers are starting to make digital-first strategies a priority,” Boal notes. “In some cases, Quotient (Retail Performance Media) retailers are now requiring CPGs to commit up to 1.5% of their gross sales to be spent on digital marketing and merchandising. We expect, over the course of 2020, promotion dollars spent in the free-standing insert to significantly decline as large CPGs plan to shift out of the FSI entirely.”
As dollars move out of print ads into digital, and retailers exploit their status as media platforms, innovation is occurring with the management of data that makes all of the other cool, new, sexy stuff possible. The right data in the right place at the right time is how Mark Detelich, chief product officer at Chicago-based Syndigo, describes the fundamental challenge facing digital retailers.
“Changing rules and federal guidelines will also put a greater demand on product labeling and attributes. And then there’s the consumer — today they shop, eat and prepare foods differently than the way traditional supermarkets are set up, which may require different packaging, labeling or added content to get the shopper’s attention.”
It’s understood that as sources of data have proliferated, unlocking value from the information can occur only by applying artificial intelligence (AI) to identify patterns and behaviors. What’s less understood is that AI isn’t a new phenomenon, but its potential hasn’t been unlocked until now.
“AI has been around since before the 1950s, but there hasn’t been the computing power to take the data sources available and leverage it. But now there is,” explains Jeff Smith, founder and head of corporate development at Revionics, an Austin, Texas-based provider of price and promotion optimization solutions. “Ten years ago, if you talked to somebody about AI, they’d kind of freak out. Now everybody’s talking about AI, and you need it in your business, so it’s fully accepted and embraced.”
Make Shopping Fun Again
With digital natives entering their prime spending years, retailers unable or unwilling to blend the physical with the digital and infuse both with elements of gamification risk losing an entire generation of shoppers. Witness the popularity of gaming, which has coincided with the rise of the smartphone. Video gaming has exploded in the past decade, with the global games market valued at nearly $150 billion in 2019, according to Netherlands-based gaming intelligence provider Newzoo. The firm projects that the gaming market will expand to $189.6 billion by 2022.
With younger shoppers embracing games, the obvious implication for retailers is to add gamification elements to their digital and store experience. Since shopping is already a bit of a game, with the hunting for bargains and quest to accumulate rewards, the integration of gaming principles to re-energize loyalty programs is an area ripe for innovation, with fresh ideas sourced from other industries.
For example, Nike lets customers compete against each other by tracking their activity, sharing achievements, and receiving personalized messages and product information based on what they log. Walgreens, through its Balance Rewards loyalty program, encourages shoppers to join health challenges, track their progress and earn rewards based on achieving certain goals. Technology helps gamify the shopping experience and make it feel less like a chore. In one fun example, Sam’s Club’s augmented-reality approach lets shoppers use its app to transform a shopping cart into a pirate ship or rocket.
Gamification was apparently on Albertsons’ mind when it looked outside the food retailing world to hire its chief customer and digital officer. The Boise, Idaho-based retailer recently appointed Chris Rupp to that role, and what’s interesting about the move is that she’d spent the past three years at Microsoft, most recently as general manager of the Xbox business. Between her gaming background and prior experience at Amazon as part of the team that created and launched Prime Day in 2015, Rupp is indicative of the type of nontraditional executive that food retailers are looking to hire.
The Trouble With Trends
Right around this time a decade ago, prognosticators fixed their lens on the teen years of the young century and surmised that 2010 and the ensuing timeframe would be marked by interest and innovations in ethnic flavors, organic and locally sourced foods, breakfast, prepared meals at home, food trucks, and iPads in restaurants. Many of those predictions have proved accurate. Ethnic flavors have indeed become mainstream, and the development of creative, healthy organic, locally sourced and convenient prepared foods has continued in earnest.
Now, looking ahead into this coming decade, experts are weighing in on the changes transforming the way that people buy and eat food, and the methods by which those who produce and sell it are evolving, with major implications for consumer eating and buying behaviors, and advances in food production, traceability and merchandising.
A perfect example is the plant-based phenomenon. The clamor about plant-based — or “plant-forward,” as it’s often called — has had a ripple effect in virtually every segment of the produce industry, as well as those in the meat, poultry and dairy industries contending with plant-based competition for their animal-based foods. But is this a seismic, permanent shift, or just another iteration of the grapefruit fad of the 1970s, the oat bran craze of the 1980s, the low-fat diet of the 1990s or the high-protein trend of the early ’00s?
The traditional threshold of sales, of course, will be the final determinant, but there are some potential chinks in this plant armor. Growers, including soybean farmers, must work to satisfy demand for both animal feed and plant-based proteins, and since plant-based consumption isn’t anywhere near meat-based consumption, they likely won’t divert all of their energies to that market. There may be some environmental tradeoffs, too, because a higher amount of plant-based foods may be needed to replace animal proteins. Some studies have shown elevated levels of greenhouse gas emissions coming from large-scale greenhouses.
At the same time, product developers are spending a lot of R&D effort working on “off” flavors associated with plant-based foods that aren’t familiar to consumer palates and that can come from plant breakdown or oxidation during processing. After all, it’s all about taste: According to a recent white paper for Ireland-based ingredient supplier Kerry Inc., 73% of consumers think that alternatives should mimic the taste of meat.
This flexitarian or “reducetarian” eating pattern will translate to product assortment at grocery and in the ratio of ingredients in various types of prepared meals. The next meat case, for example, will have an array of meat and poultry items as well as plant-based alternatives, while the prepared food sections will have dishes that include meat as an ingredient in selections also packed with vegetables, legumes and whole grains.
Defining “Local”
In many consumer surveys, people indicate a penchant for locally sourced products, from produce to meat to dairy, among other ingredients. “Local,” though, can be a relevant term. While the Nielsen research found a consensus that locally sourced products come within a 50-mile radius, there are some products that U.S. consumers regard as local “as long as they come from the U.S.” Other times, local means regional.
In 2020, local could truly mean local. Some stores are finding a niche — for marketing purposes, as well as tighter supply chain reasons — in keeping things highly local with their own production capabilities. Kroger recently teamed with Berlin, Germany-based Infarm to create modular living produce farms in the United States that use hydroponic technology.
“Our partnership with Infarm allows us to innovate by combining groundbreaking in-store farming technology with our passion for fresh, local produce and ecological sourcing,” said Suzy Monford, group VP of fresh for Kroger, at the time the news broke.
Another case in point is Los Angeles-based vertical farm Local Roots, which provides produce to Walmart stores in California. This mirrors some trends in foodservice, in which chefs grow produce and herbs for their menus in greenhouse and rooftop gardens. Not every food retailer can have its own on-site farm or greenhouse, of course, but one can expect that for as long as consumers indicate a preference that items be labeled or merchandised as locally sourced, stores will sell and promote those items when possible to capture that interest.
Down to Earth
Perhaps no area is seeing more innovation than the onward march of sustainability. Groundbreaking 2019 research from IRI and New York University’s Stern Center for Sustainable Business quantified what sustainability proponents intuitively understood: Sustainability is good for business. The research found that half of CPG growth between 2013 and 2018 stemmed from sustainability-marketed products.
Sustainability is a catalyst for other trends that will influence the way that food and beverages are produced and sold to consumers in the coming year. Look at packaging around the turn of the last decade: Single-use plastic packaging was touted as a convenient trend, and now manufacturers and packaging companies are working together to reduce packaging materials and waste and use more sustainable options.
“The heightened focus on single-use plastics is not just a fad, but a reality that goes beyond the purge of the plastic straw” is the point that Benchmark made in its 2020 trend report.
Innova Market Insights research shows that 85% of U.S. and U.K. consumers expected companies to invest in sustainability in 2019, up from 65% the previous year. This change reverberates throughout the farm-to-fork chain, with differences in transportation, merchandising and end-use recycling and disposal.
The sustainability movement is causing companies to take bold actions. Amazon revealed plans in 2019 to purchase 100,000 fully electric delivery vehicles — the largest-ever order of its kind — as it moves toward a goal of running on renewable energy by 2030.
The Innovator’s Imperative
The family-owned Sheetz chain of convenience stores, based in Altoona, Pa., opened its inaugural technology and innovation hub on Oct. 1, and AVP of Strategy Emily Sheetz offered words of wisdom for retailers to live by in an age of transformative change.
“Our mission at Sheetz is to create a business that puts the Sheetz as we know it today out of business,” Sheetz said of the new hub, where the focus is on developing, testing and implementing transformative products and services.
In that respect, she shares the same mentality as Amazon founder and CEO Jeff Bezos, who often maintains that it’s still “Day 1” at Amazon. Innovation looks a lot different at a company like Sheetz, compared with other food retailers, compared with Amazon. For example, the Seattle-based online giant with a growing physical presence is working on a facial recognition program called Amazon Rekognition, and recently rolled out a quantum computing initiative in its AWS division to rival efforts by Google and IBM. Such programs won’t have an immediate impact on food retailing, but no retailer can afford to be dismissive of anything occurring in the technology world, no matter how futuristic, if it wants to be ahead of what’s next.
