Driving Grocery Toward Zero Waste & Higher Profitability

March 18, 2021
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To put it lightly, 2020 was a momentous year for the grocery industry. As we stated in our post detailing our Instacart investment: “the coronavirus pandemic thrust the grocery industry into a digital acceleration that has, in our estimation, pulled forward the penetration curve for online grocery by about five years and set it on a trajectory to drive high growth for the coming decade.”

The impact on the customer experience of the dramatic transition to digital was obvious as purchasing behavior moved from store shelves to a mobile app. What may be less obvious is what the shift meant for grocery retailers and their supply chain partners.

The grocery industry operates a supply chain that has been optimized over decades to reduce cost and move goods to consumers quickly. However, cost and speed have come at the expense of enormous amounts of waste. Inability to forecast consumer demand coupled with lack of flexibility to react to changes in demand means that upwards of 40% (!) of perishable goods go to waste at retail. And as with all large, complex systems, introducing innovation to improve this has only become more difficult as systems have built the habit of operating with antiquated ordering flows and human-driven decision making.

The pandemic exacerbated this. As Shelf Engine CEO Stefan Kalb noted: “While grocery sales were up, grocers have had to contend with panic shopping, rollercoaster sales, supply chain disruptions, safety protocols and ever-changing state-based mandates.” Now with line of sight to the other side of the pandemic, the industry is contending with changed consumer behavior and an ever-evolving supply chain. Quite possibly, this is the riskiest time to be a grocery operator in half a century.

Which is why so many of them are now finally turning to technology to help reduce the uncertainty. Modern data collection and processing techniques combined with advancements in machine learning have already begun to transform large industries like advertising, finance, insurance, and even trucking logistics. The time has come for the $800 billion US grocery market.

Shelf Engine aims to be the end-to-end ordering solution for grocers.

Founder Stefan Kalb experienced a problem early on in his career as an operator of a fast-casual salad chain in the Seattle area. Similar to problems experienced in grocery retail, short shelf life and unpredictable consumer demand led to large amounts of food waste and unpredictable profits. Stefan befriended Bede Jordan, a long-time Microsoft software engineer, in 2012 and they began brainstorming, culminating in starting Shelf Engine together in 2016.

Today, after a number of years navigating the intricate maze of large grocery retailers, Shelf Engine operates an elegant, scaled solution for a complex problem. Capitalizing on the industry standard of the scan-based trade model – where vendors take on the inventory risk on behalf of retailers, a commonplace in the CPG world – and applying it to the perishable category, Shelf has aligned their profitability with reducing food waste for retailers. This is a dramatically large – yet under-reported – problem in the industry with estimates for spoilage ranging from 20-40% of perishable foods in grocery. Many grocers have committed to a reduction in waste, but initiatives across the industry remain early and unproven.

Using volumes of data and sophisticated modeling to predict customer demand combined with automating the purchase of perishable products, Shelf Engine has hit the trifecta of benefitting grocery retailers, consumers, and the environment. The grocer no longer has to worry about volatile gross profits and dealing with food shrinkage, trading this risk for ensured profitability of perishable categories. The consumer benefits from a better, predicted experience. And society benefits from a more efficient food supply chain that can more accurately allocate resources to solve waste and shortage issues.

Over the next decade, General Catalyst firmly believes the grocery supply chain will dramatically re-organize to efficiently meet changing consumer tastes and demand, but what that looks like remains unpredictable. International markets, which have a head start on the US in the development of this trend, increasingly show a pathway forward of flexible logistics networks, distributed warehouses, and deep integration of data into decision-making. We are confident that Shelf Engine will provide the potential energy for moving a notoriously low-margin, capital-constrained industry forward toward a brighter future that benefits all stakeholders.