AI Is Coming For Supermarket Shelves - Are They Ready For It?

Artifical Intelligence

Setting the scene: the food retail market is extremely competitive right now.

There are over 115,000 food stores in the US as of 2023, according to the Department of Agriculture, yet big box retailers like Whole Foods/Amazon, Walmart, and Target dominate the grocery market thanks to their massive footprint and access to the resources needed for innovation. That said, specialized stores like Trader Joe’s, Wegmans, and ALDI have started to gain more market share by thinking outside the box to improve the customer experience (CX) and streamline back-office processes to boost productivity.

As major brands like Amazon stake their claim on the market, consumer data from Genpact, a global professional services and solutions firm, reveals 51% of respondents think more retailers should emulate Amazon’s use of AI to improve CX. This should be heard as a warning sign to other players in the food retail space to prioritize digital transformation.

At the same time, competing with the “big” stores on the block isn’t the only challenge grocers are up against. Inflated prices are changing the way people shop. According to a recent Prosper Insights & Analytics survey, nearly 42% of US adults are buying more generic brands due to price increases and 30% of US adults are partaking in comparative shopping, also known as “treasure hunt grocery shopping,” to find the best deals to manage the cost of living.

Prosper - Doing as a Result of Price Increases

Data from Algolia, an end-to-end AI search solution, shows retailers are catching on to this trend, as 51% of B2C retail executives hope to use generative AI (gen AI) to enable better product comparisons for consumers.

We’re also seeing a greater move towards ecommerce, with almost 43% of US adults reporting they recently bought groceries online for either pick up or delivery (Prosper Insights & Analytics). Consequently, it’s harder than ever for retailers to capture consumer share of wallet due to the increasingly competitive food retail market and ever-changing shopping habits. Grocers are defending their spot in the industry by exploring how AI, including gen AI, can help.

Prosper - Use Any of the Following While Shopping For Groceries

AI readiness – are grocers there, or do they just think they are?

According to research from Genpact and HFS Research, 49% of retail executives plan to scale gen AI across multiple parts of their organization in under two years. However, the same report found that nearly half (46%) of retail executives admit they’re only in the pilot stage, and an additional 15% admit they have not even started piloting gen AI.

This raises the question: Is it truly realistic for grocers to successfully implement a full-scale gen AI plan in such a short time? Rajnish Sinha, global head of retail and ecommerce at Genpact says yes, but the first consideration is whether grocers have the necessary data and technical capabilities. Rajnish continues, “Food retailers, specifically those working with perishables, must have a robust data foundation to even consider AI deployment. The power of a strong data thread through the lifecycle of perishable items from farm/bakery to store is grossly underestimated and is a prime example of the technical and data capabilities needed to take full advantage of a technology like AI.” When done right, combining robust data management with generative AI solutions can not only boost productivity, but can also significantly improve availability and hence CX, laying the groundwork for additional innovative uses of AI in food retail.

In addition to the data and technical requirements needed for successful AI deployment, grocers also need to consider consumer concerns about AI becoming a bigger part of their everyday lives. Deploying AI too quickly without building their confidence in its role can quickly erode customer trust. According to a recent Prosper Insights & Analytics survey, the study finds nearly one-third (32%) of US adults are “extremely concerned” about their privacy being violated from AI using their data.

Prosper - Concern About Privacy From AI

This prompted 37% of respondents to agree that AI needs human oversight. This means, when planning to launch an AI strategy that will impact the shopping experience, grocers should build a framework for responsible AI that includes the creation of a governance body that oversees the use of AI. Prioritizing transparency and clear communication with customers will earn their trust and buy-in.

Prosper - Concern About Recent Developments in Artificial Intelligence

Grocers innovating at scale will gain an edge over competitors

To stay relevant in the food retail market today and in the future, grocers need to demonstrate an ability to build, nurture, and grow an omnichannel experience for customers. While many grocers have made investments that support their digital agenda, such as engaging with last-mile delivery providers and upgrading their online interaction points with customers, many have paid less attention to digitalizing back-office functions.

The few retailers that have successfully begun their AI journeys have focused on how the technology can optimize supply chain processes from planning and logistics, finance and accounting, and regulatory compliance, all the way to customer interactions. And with gen AI, retailers can bring greater accuracy to scenario planning, which is crucial to anticipate and address unpredictable consumer behavior. Doing so can help grocers improve supply chain decision-making in areas such as crop quality, time to market, and time on shelf to enable a superior customer experience. However, going from ideation to execution is no easy feat.

In response to deployment challenges, many major retailers are engaging in partnerships with third-party organizations to enable innovation, support growth, and edge out competitors with AI. For example, ALDI recently announced a data, tech, and AI-centric partnership with Genpact to help accelerate agility and cost leadership by streamlining operations.

What’s next for the industry in today’s AI era

“The coming months will be pivotal for food retailers,” says Sinha. “Technical capabilities in front-to-middle-to-back-office processes will ultimately decide which brands – whether they’re retail giants or specialty stores – have a shot at driving sustained growth in a very competitive industry with evolving customer demand.”

To come out victorious, grocers will need to bridge the process, technology, and data divide between the customer-facing and back-end components of their operating models – but getting there isn’t easy.

Wide-scale digitalization requires grocers to implement data-led transformation strategies that focus on clear business and customer value outcomes. To fully embrace this, grocers should foster an internal culture of disrupting legacy processes and challenging traditional ways of working.

Technology opens a whole new world for grocers. They must embrace AI to evolve, or risk going extinct.

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