Can Grocery Stores Survive the Age of Big Tech?

In 1978, a blizzard befell the East Coast of the United States. Schools were closed for days. Roads were impassable. On our street, in a suburb just west of Boston, children spent their afternoons building caves and carving tunnels through the drifts that nature and plow had teamed up to create. Our go-to grocery store, Star Market, was about a mile and a half away. It hulked over the Mass Turnpike, a beacon in more clement weather, advising drivers that the capital was just down the road.

During the storm, there was no way to drive anywhere. What snow the plows failed to push to the sides of the road, they tamped down under them, packing a thick layer atop the cold, gray pavement. As our larder grew bare in the ensuing days, my parents bundled themselves up, pulled on heavy boots, and trekked off to Star Market, taking with them a slatted wooden sled on red metal riders that would ferry our groceries back home.

That yarn has the fixings of a tale about life during ye olde times, when people read by candlelight, Paul Revere rode about the ’hood on horseback, and children had to milk cows before they could set to catching fireflies in the evening.

And, in some ways, they were.

In 1978, cell phones barely existed. Grocery delivery was still rare, and apps were an invention of some distant, future world. Artificial intelligence and chatbots, self-driving cars and drones—these were components of science fiction and wild fantasy, if they were anything at all.

There were grocery carts: three-dimensional structures made of metal and wheels that had first been developed by a handful of entrepreneurs who worked entirely independent of each other in the late 1930s and early 1940s. Their carts were beta models that made it possible for people to shop on their own and buy a greater quantity of groceries all at once. No longer did they rely on the milkman. These carts—forebears of the ones my parents used in Star Market that epic winter—shaped patterns of consumer behavior that have endured for decades.

The early grocery cart was technological disruption of an analog sort. Today, disruption is digital and its impact has a much higher order of magnitude. It affects how we pay for groceries, who picks and packs them for us, whether they arrive at our doorstep—or in our kitchens—and more.

We live in an era in which consumers can now restock the fridge while stuck in traffic, and robots are tested to see if they might obviate the need for paid (human) employees to restock grocery shelves at night when stores are closed. There are very likely children in our midst who have never been mesmerized by a wall of endless cereal possibilities—because they’ve never been inside a supermarket.

To some extent, Amazon is responsible for such a sea change. The Seattle-based behemoth has remade how we buy things. We scrutinize the offerings on virtual shelves while still in pajamas on the couch attempting, yet ever failing, to fill our bottomless virtual shopping carts.

Amazon’s initial entry into grocery products sent a shudder through the industry.

“For many of the traditional supermarket venues, that was a real eye opener,” says David Fikes, a vice president of communications at the Food Marketing Institute, an advocacy organization whose members represent some 33,000 stores nationwide. “They weren’t quite sure for a couple of years whether to adopt that or embrace that.”

Their hesitance was—and still is—understandable: The grocery sector has low profit margins. They hover around one to two percent. That means there’s “no room for mistakes and experimentation,” Fikes says. “Retailers want to know—if I’m going to spend the money, it has got to work.”

For a good while, he explains, many grocery store and supermarket owners viewed the online proposition as one of either/or: Migrate their business entirely online, or remain brick-and-mortar.

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Then, in 2017, Amazon acquired Whole Foods in a whopping $13.7 billion transaction that dropped jaws. Dominance in the online sphere was inadequate, it seemed. Amazon was reaching out for its own heaping piece of the brick-and-mortar pie. (Bad for digestion, sure, but think of the profits.)

For the store owners Fikes represents, the acquisition marked a turning point. “The lightbulb went off, saying: This is really a ‘both/and’ operation. If Amazon is going to play on our ball field, we can play on theirs,” he tells me. “And now they’re realizing they are never going to be able to breathe easy. It’s this constant seeking of: How can I become even more relevant to my customer?”

But tech was reshaping how we shop for our food long before Amazon and Whole Foods joined forces.

In 1989, a Florida man filed a patent for a self-checkout machine, an idea he came up with five years earlier when he grew frustrated with waiting in line to pay for groceries. That same year, Peapod launched operations. In 2000, Walmart.com debuted, allowing for an entirely online shopping experience. Hello, Fresh joined the fray in 2011; Instacart and Plated, a year later. That small handful of examples barely begins to demonstrate how digital technology and the internet have quietly revolutionized how we shop.

We take for granted that stores have websites and multi-channel digital footprints that make it easy for shoppers to research products, comparison-shop, find store details, and hunt for deals. If there were any outlets around nowadays that lacked such digital imprimaturs, we’d look at them askance. The parameters of current digital disruption, though, are far broader and deeper than maintaining a standalone website or an Instagram account hawking back-lit portraits of stone fruit hybrids.

Earlier this year, Albertson’s joined a growing group of retailers using IBM’s block-chain technology to keep digital records of the provenance and routes that products follow as they travel from farm to shelf. Last year, Kroger rolled out digital shelf labels that depend on Microsoft cloud technology. They can be programmed and changed throughout a store at once by computer. Kroger has also teamed up with Nuro, a company that makes self-driving cars, to pilot a grocery delivery service in Scottsdale aimed at reducing the number of trips individual shoppers make. This year, that pilot moved to Houston.

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Ubiquitous as these services and pilots are, they still account for a tiny share of what FMI estimates is a $641 billion industry—just about five percent.

“In 2019, that’s shockingly low,” says Pradeep Elankumaran, the co-founder and CEO of Farmstead, a same-day locally sourced grocery and produce start-up based in San Francisco. Back in 2016, he saw an opportunity to cannonball into this particular ocean.

“My daughter had just turned 2,” he explains. “She started drinking a lot of milk and going through this crazy growth spurt. I found myself going to the grocery store three or four times a week, and I’m an engineer. I don’t like doing the same thing over and over again.”

So Elankumaran and Kevin Li, a colleague from Yahoo where they both then worked, set out to devise their own way to disrupt grocery delivery. They promised no fees, subscriber services, delivery that took, on average, 35 minutes. They would employ algorithms that determine the best routes for a fleet of contracted drivers making multiple deliveries per foray. They would track the particulars of every product they carry, including sell-by dates and how fast inventory moves, and feed that data into a machine-learning model that would determine exactly how much stock they need to buy.

The technology they used both reduced inefficiencies and met customer needs—their own included. “The eco-friendly piece matters to us as a business. There’s no other way,” Elankumaran says. “It mattered to a lot of customers—they’re thinking: What is my impact on the planet?”

For Elankumaran, that concern outweighs anything that might arguably be lost by eschewing brick-and-mortar stores. “Brick-and-mortar serves that community purpose. Using apps by default,” he says, “will lose the community aspect, but think what you gain from it. Our ability to cut down this food waste—that goes pretty far with our customers.” He pauses and declares: “We’re not building for people who have gotten used to existing behavior.”

As a member in good standing of Generation X, I've gotten used to existing behavior. I don’t reject change, but I'm not the fastest adapter to it either. Sometimes I find myself suspicious of technology. I regularly unplug the Google Home Mini lest it be spying. Most importantly, I like to go to the store. I want to feel the produce myself and smell the melon to see if it’s ripe. I want to know what I’m eating before it enters my home.

And I’m not the only one.

According to the U.S. Grocery Shopper Trends, a report from FMI, millennials are far more likely to shop for groceries online than boomers—43 percent to 14 percent, respectively. Gen X is sandwiched between the two. Millennials, particularly those with children, also lead the way in terms of using tech when they do go to the store. In brick-and-mortar aisles, they use their smartphones to access coupons, product reviews, and recipes. Farmstead and other start-ups know this and are chasing it. They are less concerned with capturing our consumer loyalty—and our dollars.

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I’ve been a member of the 17,000-member Park Slope Food Coop for at least a dozen years. To be a member, you must work every month for roughly three hours. My job overseeing checkout workers has enough leeway that I can plug my phone into the store’s audio system and serve as temporary DJ. As a member, I’m the beneficiary both of lower prices and the opportunity to live out a fantasy that I’m Queen of the Night Life.

I’m not so strict, though, that I don’t also patronize local farmers markets where I select my own Macouns and Kirbys. I sometimes order dinner in, too. When I visit my folks, I head to a mix of big and local chains like Big Y, Stop and Shop, Price Chopper, and Guido’s.

Within the past decade I availed myself, just once, of Fresh Direct, the 20-year-old metro New York grocery delivery service. The apples that were included were too polished, their gleam trying to distract me from mediocrity of taste and mouthfeel. That a stranger had handled my produce made me cringe in the way only an amateur germaphobe would. Since then, their delivery trucks regularly clog up the streets of my neighborhood. The hum they generate as they idle is an unfortunate contribution to the ugly, non-stop urban symphony of white noise.

I want no part of it.

In a pinch, I head across the street to a crowded supermarket that aspires to attract and retain local gentrifiers. It’s pricey, shiver-inducing, and generally underwhelming. Still, it carries emergency stocks of toilet paper, popsicles, frozen mac and cheese.

You see, just as retailers have realized that the competition between online markets and brick-and-mortar ones is not zero sum, shoppers know, too, that there is no need to pick a side. We mix and match where and how we get our groceries. Choice now reigns both in aisles and in how we procure our groceries.

“It’s a fool’s errand to think 10 billion people are going to think the same way,” says Mike Lee, the founder of the Future Market, a lab and incubator that supports food-related concepts and products that embrace sustainability and take into account biodiversity and economic inequality. “We’re digitally empowered. You can find your tribe of people. No one’s a lone weirdo anymore.”

Lee grew up in the Detroit area and likens the food experiments his project supports (Digital Degustation, for instance, which relies on personal 3D printers to create Meals, Ready-to-Eat) to the concept cars that are a highlight of the annual Detroit Auto Show. Not for sale and not necessarily executable, they illustrate possibility: what we may be driving—or eating, or buying—in a decade or more.

3D printed meal initiatives, though, cannot foster community. Brick-and-mortar outlets are far better equipped in that department.

La Bonne’s, the supermarket my parents frequent today, is about a quarter mile from the Appalachian Trail, where it crosses from Connecticut into Massachusetts. In summer months, through-hikers are a regular part of its customer base. They stop in to use the WC, stock up on energy bars and GORP, and treat themselves to prepared foods that they then savor at picnic tables set up outside. A big bulletin board on an exterior wall overflows with announcements of local tag sales, concerts, lawn services, and eldercare programs. Across the way there stands a Tiny Free Library box, just outside an antiquarian bookshop that seems to keep very limited hours.

People know each other at La Bonne’s. In line, a cashier asks one patron how her child is doing. Is he headed back to school soon? The in-person contact nourishes a sense of fellowship and trust.

That does not mean, of course, that the use of tech rules out the possibility of trust-building between consumer and retailer. “At the end of the day, it comes down to a level of trust, and that’s ultimately what wins out,” explains Doug Baker, FMI’s vice president of industry relations. That is, the form a retailer takes is less critical than how they engage with and respect their customers.

“Apps like Airbnb and Yelp proved in the last decade that you can scale and automate trust,” Lee says. “I haven’t seen anyone do this in food yet, but it makes me wonder: Can you apply this model to a butcher shop? Is there potential for me in Brooklyn to have a dialogue with a fishmonger in Seattle, to have a relationship with him?”

Younger shoppers may find it far easier to forgo brick-and-mortar for tech–fueled and enhanced grocery experiences. “They’ve spent 95 percent of their lives interacting with screens,” Lee adds. “None of this sounds weird to people below a certain age.”

On a much more basic level, going into a grocery store is fun. You gain a sense of local fare and a less touristy view of how people live day-to-day, of how they interact with the world around them. One of my fondest memories of being abroad after college was visiting supermarkets: Monoprix in Paris and Supersol in Denmark Square in Jerusalem.

Lee has fond supermarket memories, too. “My wife and I used to go on dates to the grocery store,” he tells me. “Once, after dinner on vacation, we literally walked around a grocery store in Mexico for two hours. That was a fun night.”

The influence of tech does not mean that traditional grocery stores are done for. "People will still go to them," Lee says. "But the role they play and the experience they deliver will change."

In contrast, technology can tell us a story behind what we eat. "Most consumers these days are three or four generations removed from the farm," Fikes says. "And they want to know how it was produced, where it was grown, what are the nutrients in this? They want to know more about their food than they did before."

Elankumaran agrees and takes it further still. Consumers—the ones he is looking at and for—want to know that the food they are buying and the businesses they are patronizing are actively pursuing sustainability. As much as shopping for groceries online is about convenience and saving time, it's increasingly also about something else: supporting businesses that are aligned with your values.