Talking about online groceries inevitably leads to questions by many about how Amazon expects to muscle its way further into the industry. Meanwhile, traditional grocers, meal kit companies and grocery delivery startups are taking steps to make inroads and ultimately win control over the burgeoning digital sector.
Consumers are looking for convenient ways to buy their produce, protein and pantry staples. In 2016, e-commerce groceries saw a 15 percent growth spurt, according to Kantar Worldpanel. And a joint report by the Food Marketing Institute and Nielsen projects online grocery shopping in the U.S. to top $100 billion by 2015.
One new brand, Farmstead, is leveraging artificial intelligence (AI) software to deliver groceries to shoppers' doorsteps in the San Francisco area.
Farmstead bills itself as an AI-powered digital grocer that sources and delivers fresh, local food to consumers in 60 minutes or less. The company's founders are technologists and they see the startup as a tech company. While you won't see an AI-animated robot dropping off your food haul, AI does make up a big component of how their business operates.
"[AI] helps us predict exactly what you would buy, how much of it you would buy, so that we don't waste a lot of food at our micro-hubs," Pradeep Elankumaran, Farmstead's CEO and co-founder, told Circa. "We spend a lot of time thinking about digital product and the overall experience of you getting your groceries. How do we fit into your life in a seamless way so that you can rely on us as a utility?"
Whether it's farm-fresh produce or just-baked bread, Farmstead aims to answer the question of how to empower local farmers, bakers and food suppliers while making on-demand deliveries. Think of it as the 2.0 version of the milkman, but with lots more options, like raspberries, avocados and bread from mostly local purveyors.
Pain Bakery is one of the local brands partnering with San Mateo, California-based Farmstead. The idea is to make farm-to-table (or in this case: oven-to-table) happen; to turn it into a viable business model with the help of AI.
"As consumers, we want to make consuming easy," Davey Surcamp, owner of Pain Bakery, told Circa. "My impetus is to get it as quickly from the oven to your dinner table, as fast fast as possible."
So much to buy, so little time...
People are busy, and they put a premium on being able to save time and money. Shoppers also value having access to high-quality products. Farmstead's proposition to consumers is automated grocery deliveries they can order from the app, and sign up to get on a weekly or daily basis – before they run out.
"It's taking... the connected society and people that want food integrity, and putting them together," Chris Versace, chief intelligence officer at Tematica Research, told Circa.
Grocery is a $750 billion space, but not many people are buying online yet. Right now, approximately 2 percent of American shoppers buy their food online, according to data from Kantar Worldpanel. While few American shoppers actually make their grocery purchases online right now, it's still viewed as an attractive revenue stream for retailers from Costco to Kroger as they search for ways to edge into the space. Versace says convenience will eventually triumph and make buying your food from apps or websites completely normal.
"It has to be that layer of convenience where, maybe not ten minutes, but 'Oh, I need this, I'm going to start cooking in an hour and I don't have it.' To me, that’s really the tipping point for grocery," Versace said.
And while many companies peg cash-and-time-strapped millennials as their target audiences, he says the more immediate cash potential might be in aging boomers who typically have more money to spend and less agility to go out and shop. "There's a huge market out there for people who are increasingly bounded home," Versace said.
Waste not, want not
What Farmstead wants to do is cut food waste at the source by modernizing the grocery supply chain. In America alone, $218 billion worth of food is thrown out each year. With one in seven Americans not having enough to eat, per ReFED data, the waste is a real issue.
"We want it to be as easy as turning on a tap to get water for you to get groceries from Farmstead."
When it comes to how they look at sourcing food, Farmstead relies on consumers to help guide what they stock on their shelves. When you download the app, you pick what you want from the 1,000-plus items they stock. The AI software keeps tabs on what people buy and sends them reminders it's time to get a new carton of milk. That also helps Farmstead know how much of each item to have in stock.
"Historically, it's been very difficult to connect supply and demand just in time for a perishable set of products," Farmstead's Elankumaran said. "That's something we are really good at."
In spite of sprouting competition, Farmstead has made over 17,000 deliveries since launching last year. Their goal is to expand to more markets across California in the next year, before taking their app national.
"We want it to be as easy as turning on a tap to get water for you to get groceries from Farmstead," he said.
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