Investors are clamoring for startups that focus on automating supermarkets

The players are going after a $12.24trn grocery retail market.

By Tom Stein, VCJ Correspondent

Amazon sent shockwaves through the supermarket industry when it purchased Whole Foods Market two years ago.  

It further increased the pressure on traditional grocery chains by rolling out Amazon Go, a chain of convenience stores featuring cashier-less technology that eliminates checkout lines. Customers with the downloaded app simply walk in, grab what they want and just go.  

It’s clear that Amazon once again smells blood. Research conducted by food and beverage technology company Phononic found that 50 percent of consumers believe that grocery stores have not yet figured out how to take advantage of technology. The study also revealed that 89 percent of grocery shoppers want to shop in a store that understands how to make buying groceries an easier and more efficient experience. 

Does this mean that grocery stores will soon face that same fate as the rest of the retail industry? Many chains now understand they need to innovate before it’s too late. That’s why they are searching for new solutions to better serve their customers and keep up with the competition. 

Startups are rushing in to help grocery stores transform their business and hold on to their slice of a global food and grocery retail market that is expected to reach $12.24 trillion by 2020, according to Grand View Research Inc.  

“We have a worldwide, multi-trillion-dollar supermarket industry in crisis,” says Alastair Mitchell, a partner at EQT Ventures. “But I would argue that every grocery chain is both scared and excited. They are scared because Amazon is such a formidable opponent. But they are also excited because there are now startups and technology solutions that are showing them the path forward.” 

Alastair Mitchell, partner at
EQT Ventures.

Startups in the aisle 

Caper, for instance, has raised $10 million from Lux Capital and First Round Capital for its smart shopping cart that uses computer vision and deep learning to instantly detect items as they are dropped into the cart. With Caper, customers can simply toss their items into the cart and then leave the store, bypassing any checkout lines. The cart can also help shoppers find products in the store as well as recommend new items and alert them to discounts. 

Trigo, a computer vision startup building a checkout-free grocery purchasing systems for supermarkets, has bagged $22 million, led by Red Dot Capital. The company’s network of ceiling-mounted cameras creates a 3D image of the shop-floor environment, and then maps the movement of every object as consumers shop. The company says its proprietary algorithms and neural networks enable a frictionless shopping experience, where consumers can enter the store, pick what they want and leave. 

Swiftly has raised $15.6 million for its technology that lets grocery store customers scan items in their cart using its app as they go. Then at checkout time they can skip the line by using a dedicated Swiftly lane, where an attendant takes a photo of the basket to verify the purchase. 

In December, Accel Robotics rang up $30 million in Series A funding from SoftBank Group for its AI-based technology that facilitates checkout-free shopping experiences, helping stores operate more efficiently. 

And then there is Standard Cognition, which is leading the way in terms of venture funding. The startup has raised a total of $86.1 million from EQT Ventures, Initialized Capital, CRV and Y Combinator. The company now boasts a valuation of $535 million.  

Standard Cognition says it is enabling autonomous checkout for convenience stores and other retailers via its AI-powered computer vision platform. When shoppers enter the market, they simply press the check-in button on the Standard Cognition mobile app. Then they put their phone away and shop. When they’re done shopping, they just leave the store and get their receipt by email. 

The company is using a combination of cameras, computer vision, and AI techniques to facilitate this autonomous checkout experience. Their cameras follow shoppers in real time as they move around the store, take items off shelves and place them in their carts. The technology detects if a consumer picked an avocado rather than an apple, and it keeps track of every selection. 

“The beauty of Standard Cognition is that you don’t have to build an entirely new store with customized shelving and embedded sensor technologies, which can be insanely complex and expensive,” says Mitchell, who led his firm’s investment in the company. “Stores can literally implement our camera technology overnight.” 

He says the technology isn’t just for automated checkout. It can also help supermarkets keep track of the items in the store in real time and ensure that products are replenished long before the last one is removed from the shelf.  

Despite a rising number of startups in the space, Mitchell is confident that Standard Cognition has the early lead. He says that the latest round of funding will help the company make strategic acquisitions and consolidate the market. For example, the company recently snapped up DeepMagic, an early leader in autonomous retail kiosks. 

“There is a huge opportunity in front of us, but there will only really be one or two winners,” says Mitchell. “It will be a winner-takes-most market and we are positioning ourselves to be a very big company in our own right.” 

Dealing with Amazon 

Perhaps the biggest threat to those grandiose plans is Amazon itself. The company is reportedly planning to license the automated checkout technology that powers its Go stores to other retailers, including those it would ordinarily compete against. 

But Mitchell, for one, isn’t too worried about Amazon. “Because no one wants to give their data to Amazon,” says Mitchell, who adds that he believes only a small percentage of retailers will want to work with Amazon.  

“The rest will want to partner with independent technology providers,” he says. “The last thing anyone wants is for Amazon to know how their customers are behaving and what products are selling or not selling. No one wants to cede their entire competitive edge to Amazon.” 

Barak Solomon, Red Dot Capital Partners.

Barak Salomon, managing partner at Red Dot Capital Partners, says he’s excited by his firm’s investment in Trigo because grocery shopping will always be something people will want to do in person, and not just online. Trigo, he says, makes the shopping experience better.  

“I think fresh food is something that people will always make the extra effort for,” he says. For example, he says shoppers want to choose for themselves the piece of fruit with just right ripeness. “Personally, I still really hate to stand in line. But If I can put everything in my cart and just walk out to my car, that is ideal,” he says. “It will soon seem normal to go into the grocery store, grab what you want and go.” 

Trigo has signed deals to implement its 3D mapping technology in Shufersal, the largest grocery chain in Israel. It is also working with English supermarket Tesco, which has invested in the company. Trigo recently installed its system, including 160 cameras, inside a 3,000-square-foot Tesco store.  

Salomon says Trigo’s technology is currently designed for stores that are 5,000 square feet or less. “The technology is not yet right for 25,000-square-foot big-box units like Walmart, because as you go bigger the number of cameras you need scales exponentially, not linearly, so it becomes very challenging and complex. However, there is huge opportunity to deploy the technology in smaller stores.”  

On the cusp of change 

Zack Schildhorn, a partner at Lux Capital who led his firm’s investment in smart shopping cart Caper, says grocery shopping has been largely untouched by technology, but it’s a category on the cusp of radical change.  

“Amazon… has put pressure on traditional grocers to innovate,” he said in a recent blog post. “Grocers are actively seeking ways to modernize their offerings to serve digitally-savvy and time-conscious customers.” 

He says he was attracted to Caper because of its cost-effective approach to autonomous shopping. “We’ve seen a number of startups targeting this sector, with most promising some instantiation of an Amazon Go-style checkout experience enabled by whiz-bang whole-store sensor technology,” he says. “Aside from the fact that it’s an extremely difficult problem to solve (most stores carry over 30,000 SKUs across an average of 40,000+ square feet), it assumes that grocers are willing to spend a fortune.” 

Schildhorn argues that Caper shopping carts can be quickly and inexpensively deployed to many locations with no major changes to store infrastructure or operations.  

“It’s simple and affordable to deploy, as grocers are already used to managing carts and don’t need to upgrade an entire store at once,” he says. “And by constraining the computer vision challenge to the controlled environment inside the cart, as opposed to the unstructured and highly varied environment of stores, the company greatly simplifies and expedites the technical challenges of automatically recognizing items.” 

Mitchell of EQT Ventures says a fully autonomous checkout experience is not a matter of if, but when. “I’m not sure if true autonomous driving is coming anytime soon,” he says. “But when it comes to autonomous grocery shopping, I think the future will be here a lot faster than people realize.

Tom Stein is a VCJ correspondent from Palo Alto, California. He can be reached at tom.stein@yahoo.com.