2022 Innovation Outlook: Grocery Gets a Tech Upgrade
Mention the word “innovation” in grocery, and the first thought that comes to mind is technology. There isn’t an aspect of food retailing that hasn’t been touched by technology, from how products are grown, harvested, transported, packaged, merchandised and marketed, to how stores operate, are integrated digitally and leverage data to optimize decision-making.
Progressive Grocer’s annual Innovation Outlook offers a practical look at the pervasive impact of technology as well as overarching consumer trends. “Practical” is the key word. By design, this isn’t an exercise in futurism to look at how grocers will operate in the metaverse — whatever that is — or to predict when digital currencies displace dollars and autonomous vehicles and robotics rule the retail landscape.
While each of these things have long-term implications, PG took a more constructive, near-term approach in developing our Innovation Outlook. We focused on what’s in front of the industry right now, as in 2022. We isolated eight broad areas where innovation is occurring on multiple dimensions. These are areas where, over the course of 2021, we witnessed profound change and expect more change in the coming year. The grocery industry is transforming in profound ways in the following areas:
Artificial Intelligence: Retail is a data-driven industry and grows more so every day. However, as data sets grow larger and legacy systems obstruct the execution of strategies, a key determinant of success in 2022 will be the ability to unify data sources and apply AI to make optimal decisions.
Ethical Eating: Americans have embraced this concept in a big way. Whether it’s the consumption of plant-based products, humanely raised conventional proteins or fair-trade certified goods, a fundamental shift in shopper behavior is intensifying. Retailers and brands will need to appeal to shoppers in new, authentic ways, backed by transparency, to drive shopper trust.
Foodservice at Retail: Restaurants have come roaring back, but grocers have innovation on their side. Quality and affordability are strengths, too, especially amid rampant inflation. The biggest opportunity is to more effectively integrate prepared foods into e-commerce platforms to grow sales with shoppers who are already digitally engaged.
Retail Operations: Signing bonuses and pay increases became the norm in 2021 for front-line employees in stores and fulfillment centers, but now what? Increased labor costs have altered the expense structure of retailers that are employing new strategies to increase employee productivity while leveraging technology in new ways.
Shopper Engagement: Targeting shoppers has never been easier due to an abundance of data, but it’s also becoming increasingly challenging due to evolving privacy regulations. Data stewardship and privacy matter to consumers — and federal regulators — which is why retail media will be the hottest space in marketing in 2022.
Store Experience: Traffic has rebounded at stores, but ensuring that it sticks around requires new ways of thinking about the store experience. New technologies and innovative partnerships will re-energize physical spaces in ways that make them magical as opposed to less worse.
Supply Chain: It’s a broad topic and innovation abounds, but one area of huge impact in the coming year involves advances in middle- and last-mile transportation of goods, and the fulfillment of orders. Autonomous pilot programs are advancing and new business models are gaining steam to disrupt traditional supply chain approaches.
Sustainability: The focus on sustainability is getting stronger and more expansive. This was evident from the volume and creativity of entries in PG’s inaugural Impact Awards program earlier this year. Retailers and CPG companies in 2022 will deepen existing commitments and find new areas of their operations to view through the lens of sustainability.
As retailers look to executive strategies in each of these innovation areas, they’ll be doing so in a marketplace of quickly evolving shopper expectations. As recent research from PG revealed, shopper expectations continue to increase and grow more expansive, thanks to technology, changing demographics, unprecedented access to information, and shifting views of the role of business. In “The New Age of Elevated Expectations,” we looked at the attitudes and behaviors of those ages 18 to 34 who are entering their prime household formation and peak spending years.
They expect more from the companies with which they do business. That’s going to require an unprecedented level of innovation in 2022, and beyond.
1. Artificial Intelligence
The origins of retail as a data-driven industry can be traced to the advent of point-of-sale scanning more than 30 years ago. That’s when retailers first turned on the spigot of Big Data and two things happened: There was the euphoria of having accurate sales information, combined with the realization that effectively leveraging the data was an immense challenge due to unsophisticated systems.
The data seemed overwhelming at the time, so early use cases were crude exception-based approaches to identify item and category sales trends for underperformance to take corrective action. Large retailers would boast of data warehouse capacities in terms of terabytes. As sources of data from all types have grown exponentially, the unit of measurement has shifted to petabytes (1,000 terabytes), and exabytes (1,000 petabytes) have entered the conversation, too.
This explosion of data is happening on two fronts: There’s the structured kind that comes from retailers’ operations or those of trading partners, and then there’s the unstructured kind, most commonly emanating from social media or user-generated content. Both types are extremely valuable, but deriving actionable information from incomprehensibly large data sets has outstripped the capabilities of humans.
That’s why 2022 will be the year of AI in grocery. Retailers are discovering the breadth of use cases where the power of AI can be put to use against large data sets to inform strategic decisions. Some obvious examples are in demand forecasting, where AI can produce the perfect order, in theory, by incorporating assumptions about the effectiveness of pricing and promotion strategies. Insights from other data sets can be incorporated, too, such as social media, which can have a bearing on demand and consequently feed into supply chain considerations, order quantities and lead times.
Other use cases revolve around connected devices and have implications for food safety, equipment maintenance and shrink reduction. Connected devices throughout stores, whether on the shelf edge, in the frozen aisle or prepared food area, can gather valuable information. However, without an AI engine to make sense of the volume, the data is essentially worthless. It’s the difference between knowing a freezer is about to fail or only discovering it’s failed when the ice cream has melted.
AI will also play a huge role in 2022 in optimizing marketing. As more retailers enter the retail media world and larger operators grow more sophisticated, AI will help with targeting and real-time optimization of campaigns to individual shoppers.
These things are now happening selectively with market leaders, but 2022 will be the year in which AI is adopted more broadly by the grocery industry.
2. Ethical Eating
As shoppers are becoming more aware of where their food comes from, they’re pushing for food manufacturers and even retailers to align with their own values with regard to sourcing. A good example of this is in the red-hot plant-based food space, which is seeing an impressive influx of new products across all categories. In 2020, U.S. retail sales of plant-based foods continued to climb by double digits, increasing 27% to $7 billion, the Plant Based Foods Association and The Good Food Institute found, noting that this growth was consistent across the country.
Advocacy groups like PETA are even getting in on the act: The organization’s recent ThanksVegan promotion urged consumers to go meatless for Turkey Day, citing grocers with robust plant-based holiday offerings and recipe ideas.
Further, according to a recent study from The NPD Group, plant-based dairy and meat alternatives are forecast to grow through 2024, driven almost entirely by Millennials and Gen Zs, who are selecting such products not only because of their healthy halo, but also because of these demographics’ abiding concerns regarding sustainability and animal welfare. How widespread are those last two convictions? Deloitte research uncovered that 70% of the 2,000 U.S. adults ages 18-70 that it surveyed last July agreed with the idea that plant-based food is more environmentally sustainable than fresh meat, while 65% agreed that the treatment of animals informs their interest in plant-based meat alternatives.
As Millennials’ and Gen Zs’ interest in plant-based dairy and meat alternatives reaches beyond burgers and almond milk to various meat, poultry or seafood analogs; flavor profiles; and formats, NPD identified additional plant-based opportunities in the frozen, shelf-stable, indulgent and snack categories.
As for new plant-based proteins, this past September, San Diego food tech company Plantible Foods raised $21.5 million to expand the production of lemna, more commonly known as duckweed, which emulates the functional characteristics of widely used animal-based proteins and enables food companies to match the taste and texture of animal-based products with a more sustainable plant-based ingredient.
Emerging ethical considerations of consumers that should also be on manufacturers’ and grocers’ radar are protecting endangered pollinators through policies enacted across both retail stores and supply chains; foods produced by regenerative agriculture, which employs practices aimed at reversing climate change; and upcycled items, which are made from ingredients that are byproducts of other processes.
3. Foodservice at Retail
Americans’ eating behavior altered dramatically over the course of the pandemic. People stuck at home throughout 2020 and much of 2021 ate more meals at home, discovered the art of cooking and propelled grocery sales to record levels. The pandemic undid more than a decade of market share losses that had seen food away from home overtake food at home as the preferred meal solution for the majority of Americans.
Grocers were in the right place at the wrong time for the foodservice channel when the share-of-stomach pendulum took a huge swing, but that’s all changed. Americans are dining out again, and in numbers that exceed pre-pandemic levels. Further, they’re ordering takeout from their favorite restaurants in a big way, too, as evidenced by delivery statistics shared by leading platforms such as Uber and DoorDash.
The extent of the competitive challenge that grocers now face can be seen in the recent sales trends of food wholesalers and mid-tier chains that vie for the same dollars as grocers with prepared foods and meal solution offerings.
For example, leading wholesaler Sysco said that sales for its quarter ended Oct. 2 increased 39.7% versus the same period the prior year and 8.2% compared with the same quarter in 2019. Bloomin’ Brands, the operator of 1,450 restaurants under such banners as Outback Steakhouse, Carrabba’s and Bonefish Grill, saw its third-quarter same-store sales increase 9.5% compared with the same (pre-pandemic) period in 2019. During the comparable time frame, Brinker International’s Chili’s brand posted a 6.5% comp increase at its nearly 1,100 U.S. locations. Dine Brands Global, the parent company of Applebee’s, said that same-store sales for its quarter ended Sept. 30 increased 12.5% versus the comparable period in 2019. What’s notable about the performance of Applebee’s nearly 1,700 restaurants is that roughly 27.5% of its sales were off premise.
The big swing back to food away from home was inevitable. Americans clamored to be out and about, and that was reflected in the sales numbers of key operators. What happens next in 2022 is in the hands of grocers that can choose their destiny through increased innovation, enhanced offerings of on-trend prepared food offerings and increased online integration.
The prospects for success are encouraging because, although there has been a swing back to restaurants, Progressive Grocer research shows shifting consumer perceptions. For example, home cooking is perceived better than restaurant food by 45% of Americans who participated in the second installment of PG’s exclusive research series, “What’s Next For the Way America Eats.” Convenience, taste, quality and cost-effectiveness are top reasons that consumers choose foodservice at retail, and nearly 60% say that it’s more affordable than restaurant food. Restaurants still top retail, however, with 42% of those surveyed of the opinion that restaurants are “far better” than prepared foods from a retail store.
As grocers look to shift those perceptions, they’ll be doing so in an environment where restaurants are challenged with service levels and price perceptions in a highly inflationary environment. Restaurant food may still hold the edge over foodservice at retail when it comes to quality perceptions, but grocers have gained ground. The big advantage that grocers will have in 2022 relates to the affordability issue and increasing to-go order volume with shoppers who are already using grocery pickup with increased frequency.
4. Retail Operations
Buffeted by a lingering pandemic that has exacerbated economic inequality, divided Americans politically and given rise to persistent supply chain shortages, retail employees have had it. That’s the key takeaway from a recent study from learning management system software provider Axonify, which found that workers in the sector reported burnout (63%) as being a more important motivating factor for resigning than compensation (50%), with grocery associates citing 56% burnout.
The study of 2,500-plus front-line employees in the United States, the United Kingdom and Australia in such industries as grocery also found that almost half planned to leave their current jobs, with Gen Z the most eager to quit, at 63%.
In mid-November, the Bureau of Labor Statistics reported that the number of people quitting their jobs in the United States had reached yet another record high in September, with about 4.4 million Americans leaving work behind — especially in retail, where the quit rate was 4.4%. Along with the pandemic, such factors as retiring workers and limits on immigration are contributing to this lack of willing workers, economists have noted. Further, enhanced U.S. unemployment benefits during the pandemic may have played a role in some laid-off employees’ determination not to seek another job right away.
To counter these trends, food retailers ranging from large (Walmart, Dollar Tree, Kroger) to not so large (Big Y Foods, Cardenas Markets, Oliver’s Markets) have been offering various sweeteners at massive hiring events, including bonuses for new and existing employees, funds to cover tuition for associates who wish to further their educations, and additional training and career advancement opportunities. According to an Accenture research study, 48% of retailers have altered/enhanced hiring processes to onboard new recruits faster, 38% have altered/enhanced their training processes to make it faster and easier for recruits to become work-ready, and 34% have changed role descriptions to target and attract different types of candidates.
Shoppers have been affected by the retail labor shortage, too: Supply chain management software and consulting company Blue Yonder found in its annual holiday grocery trends survey that almost half of consumers (46%) said that grocery store associates were less available during the pandemic. Of that group, 39% said that this had an adverse effect on their ability to find an item or request assistance.
When asked by Axonify what would make them stay, although compensation was important, workers also placed emphasis on more flexible scheduling (44.2%), more appreciation (42.6%) and more positive relationships at work (42%). As pandemic restrictions are finally phased out and potential job seekers’ COVID-related fears ease, it’s up to retailers to make the necessary investments to ensure that their associates feel truly respected.
5. Shopper Engagement
What’s the hottest shopper engagement trend in food retail going into 2022? It’s starting or growing a retail media network. According to Forrester, retail media revenue is poised to balloon to $50 billion globally in 2022 as more companies take their ad business in-house in hopes of growing it faster than a third party can. In the past year, food retailers such as Albertsons Cos., Dollar Tree, Cub Foods and Sedano’s have launched media networks that aim to leverage first-party and zero-party data by delivering digitally native, shopper-centric and engaging branded content to shoppers.
Albertsons, for example, aims to use its loyalty program data to differentiate itself by selling local advertising as part of retail media packages. Meanwhile, The Kroger Co. was the first place that Conagra Brands turned to when the pandemic affected every aspect of the grocery industry, from supply chain to shopper behavior. Kroger’s 84.51° data science and media arm helped Conagra make sense of its 2021 forecast, evaluate shopping behavior changes across numerous commodities and predict which new behaviors would stick. The transaction-level data with built-in privacy controls enabled the team to present better demand projections for its portfolio, make more informed assumptions about demand for innovation, and make smarter decisions on production levels, shopper retention efforts and other marketing spend — all of which have helped Conagra attract and retain new brand buyers at disproportionately high numbers, according to Kroger.
At the same time, while targeting shoppers may never be easier, it’s also becoming increasingly challenging due to rapidly evolving privacy regulations and issues related to the collection, usage, storage and sharing of data. As retailers navigate the first-party and zero-party data-privacy waters, they’ll have to persuade consumers that their data is going to be protected, and that it’s worth it for them to hand over their info and get something valuable in return. Only those retailers that gain that kind of consumer trust will be in a position to truly leverage the massive opportunity in digital ad revenue.
6. Store Experience
Once upon a time, shoppers pushed carts through their favorite stores on an aisle-by-aisle route. Now, after a series of seismic shifts across omnichannel, grocers need to up their game to keep customers in the physical store.
While traffic has rebounded at brick-and-mortar locations following a rough couple of years, operating at pre-pandemic levels may not be enough to keep people there, at least at the same rate and pace. Indeed, the store experience has become not just a point of differentiation among competitors, but also a point of retention.
Throughout the country, grocers have deployed a variety of innovative features and attractions to elevate the store experience for their customers.
Co-located stores: By partnering with other retailers for store-within-a-store concepts, grocers are providing more solutions for their shoppers. Whether it’s Target teaming up with Ulta, Hy-Vee working with DSW, or Kroger collaborating with Bed, Bath and Beyond, such mutual brand-building efforts are the tide that lifts all boats. It isn’t just about sharing space for other types of retail products, either: Grocers can offer more services, as they’ve done with banks and health clinics for years. A self-care spa within a store? Why not?
More theater: If the digital market is all about the screen, the in-store experience can include live shows. Hy-Vee’s new store in Grimes, Iowa, for instance, includes a cake studio where customers can watch bakery staff decorate cakes like a boss, while shoppers who walk into the new Dom’s Kitchen and Market in Chicago can watch plant butchers slice, dice and chop plant foods at a food stall strategically located near the entrance.
Multimedia: Live in-person demos can be augmented by video displays set up in various spots around the store, featuring content ranging from recipe demonstrations to “meet the producer” spotlights on suppliers.
Personalization: Putting the “custom” in customer relations, innovation-minded grocers are making the store experience all about the shopper’s wants and needs, beyond table-stakes tailored offerings like made-to-order sandwiches or top-your-own salads.
Reinventing store space for foodservice: Sure, it’s about grocery shopping, but as the rise of grocerants taught us a few years ago, it’s about the spectrum of eating and drinking. Forward-thinking grocers, including indies that are particularly nimble, have turned rooftops into coffee bars and created restaurant-style spaces for party rentals and special occasions catered by the store’s culinary pros.
7. Supply Chain
If there’s anything certain in this uncertain climate, it’s that keeping shelves stocked — physical or digital — will continue to be difficult for food retailers and consumer packaged goods companies for the foreseeable future. That’s because supply chain bottlenecks are poised to linger as the world expands and contracts as a result of COVID-19.
Even if the cargo ships stuck off the coast of California, freight trains carrying empty cars, and the national warehouse vacancy rate at a historic low of 3.6% are short-term problems, the trucking and shipping companies’ struggles with labor shortages are looking to be sticky. The supply chain crunch might be more about a lack of people to fly planes, drive trucks and pilot ships than container gridlock. For example, there has been a shortage of truck drivers in the United States for the past decade, but the increase in imports and demand due to the pandemic has exacerbated this problem. According to the American Truckers Associations, the United States currently faces an all-time-high shortage of 80,000 truckers, and it’s getting worse.
In addition, the problem isn’t just in distribution. As of August, there were an estimated 1.2 million job openings in the retail trade, according to the Bureau of Labor Statistics, a rise of 62% year over year. Many retailers may struggle to find the labor they need to handle the holiday rush and beyond. Plus, as retailers turn to costly air freight to get more products to locations on time, consumers can expect to see these rising transportation and supply chain costs reflected in higher prices.
Companies such as Walmart are focused on easing some of these supply chain pressures by focusing on the middle mile. The retailer has expanded its partnership with Gatik, which provides a fleet of autonomous delivery trucks. These trucks move customer orders between a Walmart dark store used for the fulfillment of online orders and stores where customers pick up those orders.
Finally, while Walmart and other retailers play with middle-mile models to cut distribution costs and meet consumer needs, the last-mile race is getting even hotter. Instant-needs companies such as Gopuff, Buyk and Gorillas, with their 10- to 30-minute grocery delivery promises, are burning through major investment dollars with key acquisitions and expansion. It remains to be seen how the ultrafast grocery space might evolve, but innovative food retailers may be thinking about partnering with these supply chain disruptors.
8. Sustainability
There has been a growing sense of urgency centered on sustainability across almost all sectors of business and commerce, as the previous groundswell has turned into a wave of efforts to minimize carbon footprints and the erosion of important resources.
On an almost daily basis, consumer packaged goods roll out efforts to improve sustainability as they work toward goals set as part of their environmental, social and governance (ESG) initiatives. Many of those innovations focus on packaging, including packaging made from more sustainable or compostable materials, or packaging that minimizes or even eliminates waste in a circular economy. CPGs across several categories — and especially in agriculture-related segments — have also revealed plans to produce their items in more sustainable and environmentally efficient ways, whether it’s sourcing seafood, feeding broiler chickens or growing crops using aeroponic methods.
Grocers, likewise, are taking concrete and often innovative steps to minimize their environmental impact, moving beyond words of support to action. To combat fresh food waste, for instance, retailers are teaming up with tech partners that use data and artificial intelligence for more accurate orders and efficient category management. Other retailers are adding on-site container farms or incorporating programs that help shoppers save money by buying fresh food near its sell-by date. For instance, one of Progressive Grocer’s inaugural Impact Award winners, The Kroger Co., partnered with TerraCycle to launch a program allowing shoppers to recycle packaging from the grocer’s Simple Truth products.
As they build or renovate stores, retailers are using eco-friendlier materials and components; Meijer, for example, recently completed a durable parking lot made with 12,500 pounds of post-consumer recycled plastic, and Tops Markets is working with an energy firm to power 75 stores through community solar farms combined with battery storage. On the transportation front, Albertsons Cos. is piloting electric trucks and electric-powered transport refrigeration units for zero-emission refrigerated grocery delivery, while United Natural Foods Inc. (UNFI) has added 53 solar-powered all-electric refrigerated vehicles to its fleet in California.
These are just a few of an increasing number of innovations in sustainability. Going forward, expect innovations to focus on advances that help CPGs and retailers hit their goals of being carbon neutral or net zero, as well as find new ways to reduce packaging and food waste.
