We often profess to be surprised, even shocked, by things that were eminently predictable. Our industry is facing two such events. While we don't know their timing, it is eminently predictable that these events will occur. Like a rubber band slowly being pulled back, the longer it takes and the further the band is pulled back, the harder it will eventually snap and the more extreme the resulting disruption. The food retailing industry is facing two such events:
1. Food consumption per capita in the U.S. will decline in the coming years at a rate potentially greater than 10 percent.
2. Technology will disrupt the retail and food broker business in ways few have yet imagined because technology has barely begun its predictable disruption of our industries.
First, consider that we Americans waste about 40% of our food and much of this waste occurs at the consumer level rather than in production. “Post store” consumer waste in the U.S. is significantly higher than in Europe even though caloric consumption per capita and economic factors are relatively similar. What if our post shelf food waste were reduced to Europe's level? Well, it's already happening. Federal data says millennials are spending about 22% less on groceries per capita than the same age group in the 1990s. Caloric consumption for this group has not changed over that time so one might posit that this reduction in food waste and resultant consumption decline among millennials has already begun. If so, we are at the beginning of a major disruption to our industry. And, it is an eminently predictable outcome that will probably be reported in a few years as a surprise. Another behavioral shift underway relates to automobile usage. A futurist speaker at an Ohio University conference a few years ago shared data showing that only 69% of 19-year-olds who can drive a car hold a driver's license and most of those who did not have one had no intention of getting one, ever. These shifts in behavior have huge implications for grocery stores in terms of overall consumption, trip frequency transaction size and operating models.
Second, technology has barely begun to impact our industry. We are bewitched by the shift in center store sales to e-commerce resulting from both technology and logistics disruptions as well as the resultant change in consumer behavior. And, we read about Amazon's GO stores and assume they are a clear glimpse into the future of retail technology. But, the technology Amazon is using combines a fair amount of old stuff (RFID, Bluetooth, etc.) with some new tech such as deep learning for tracking and recognition and they are brute forcing it into their GO stores. That's all small stuff. Much more powerful, graceful and disruptive technology is being created today especially in the areas of artificial intelligence and deep learning. For example, a company called Focal Systems in Silicon Valley is poised to disrupt the traditional broker business. Founded by a group of mostly Stanford engineers with experience ranging from secret projects at Apple to redesigning missile guidance systems, Focal Systems has developed AI and DL systems that, through an iPad-like device attached to the cart, “learns” the store down to knowing where every SKU and unit tag resides. This system can do many of the tasks performed by the roughly 100,000 broker representatives. And as tends to be the case with technology, the system will perform those task cheaper, more accurately and in real time. In addition, the devices interact with consumers in ways never dreamed of by most retailers. They can make the shopper experience much more engaging resulting in bigger basket size and no checkout necessary because the devices know what's in every cart all the time.
There is already evidence that these changes, and many others, are coming to food retailing. It's really just a matter of when.
John Linehan is Executive Vice President at King's Hawaiian.