AI-Infused Data Helps Grocers Eat Online Retailers’ Lunch

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AI-Infused Data Helps Grocers Eat Online Retailers’ Lunch

By Anil Kaul - 06/20/2019
AI-Infused Data Helps Grocers Eat Online Retailers’ Lunch
To fulfill their role as disruptors, grocers should adopt an AI strategy sooner rather than later

Grocery stores are low-margin businesses, but for generations, they’ve made a profit for one simple reason: Everyone has to eat. Over the past several years, online meal-kit services like Blue Apron and Amazon’s everything service have been chipping away at grocers’ profits. If a customer has a couple of meal kits delivered each week and orders staples online, the local grocer’s wallet share shrinks. But artificial intelligence (AI) can help grocers fight back, and grocers are uniquely positioned to win that battle.

Customers like the convenience of meal kits, which remove the hassles of finding a recipe, choosing products, selecting the right portions, etc. This is especially true for younger customers and the more affluent — the exact groups that most grocers are targeting. And yet, some grocers persist in seeing retail, meal kits and subscription services as different channels. That’s a mistake — they should focus on the customer instead and use AI to gain insights on what customers want.

The fact is, customers don’t really care which company delivers their kits or prepares their meals — they want quality ingredients and convenience. Subscription services grew exponentially for a time because they offered the convenience that customers were seeking: a boxed set of ingredients that people could use to serve a home-cooked meal on a busy weeknight. But the current struggle to retain customers, experienced by subscription services like Blue Apron, signals an opportunity for grocers.

Many Types of Meals

To examine this opportunity, it helps to take a step back and realize how people approach meals. Sometimes they want to cook a meal from scratch. Other times, they want to heat and eat their food at home for an “almost homemade” experience. Some days, they want takeout. And sometimes they want to eat out at a restaurant. Despite the proliferation of subscription meal-kit services, grocers are in a great position to own the first two categories completely.

The size of the delivered meal kit opportunity is enormous: Hexa Research predicts that it will grow from approximately $2.5 billion in 2017 to nearly $9 billion in 2025. One of the comeback strategies that Blue Apron recently debuted is to offer more specialized meal kits.

That’s because personalization is a huge draw for the target consumer groups. The use of consumer data and AI for personalization undoubtedly plays a key role in grocery share growth strategies for companies like Amazon and Walmart, too.

But that’s where grocers currently have an enormous advantage: They already have access to this valuable data regarding how customers in their area buy food, including frequency of purchases, which products people buy, what portions they select, and how frequently they prepare meals from scratch, buy meal kits, etc. That information is a gold mine when combined with AI, since it can enable the grocer to offer the highly personalized selections that today’s consumers crave, regardless of channel.

Chains that are disrupting the meal-kit market are only scratching the surface of what’s possible.

Blurring Lines

In response to strong demand — Nielsen notes that the number of meal kit users increased by 36 percent over the past year — large grocery chains are already getting in on the act. Kroger purchased meal kit maker Home Chef. Albertsons owns Plated. Publix has Aprons, a department offering recipes, cooking classes, demos and event-planning services, in addition to in-store meal kits. In doing so, all of these supermarkets are acknowledging that the line between meal prep services and traditional grocery are blurring.

The future will belong to grocers that take advantage of their data to own the space. Data is what drives innovation, which is why so many grocers keep a wary eye on online retailers like Amazon. But grocers have a unique opportunity to beat online retailers at their own game by adopting an AI strategy now, while they still have access to data that online retailers don’t yet have. Chains that are disrupting the meal-kit market are only scratching the surface of what’s possible.

With manual data analysis, it’s possible to come up with a few meal concepts that will likely do well in a region. With AI and machine learning, grocers can access enormous data sets that enable them to personalize offerings with pinpoint accuracy, building a stronger relationship with customers. Grocers not only gain incredibly valuable insights into what customers want, they can also identify emerging trends and optimize inventory by location, which is particularly valuable in a low-margin sector like grocery.

But to fulfill their role as disruptors, grocers should adopt an AI strategy sooner rather than later. Right now, they have access to data that larger competitors don’t have. And the beauty of AI and machine learning is that it gets smarter over time, so the quicker an AI strategy is implemented, the more rapidly it can create scalable business impact.

Grocers that integrate AI into their business strategy now can grow their wallet share today — and prevent customer loss to online retailers in the future.

About the Author

Anil Kaul

Anil Kaul

With more than 22 years of experience in advanced analytics, market research and management consulting, Anil Kaul is the CEO and co-founder of Dover, Del.-based Absolutdata, having previously worked at McKinsey & Co. Read More