Since the pandemic, the grocery retail industry has been in a state of near-constant, rapid evolution. To better navigate these changes, Dana Krug, senior vice president Enterprise Sales at Phononic recently sat down to share his observations and advice for grocers.
With years of experience in the grocery industry, Dana founded the company’s Cold Chain Fulfillment Division in 2020 and is at the forefront of planning and executing growth strategies for Phononic’s innovative grocery retail solutions.
Join us as we dive into an important conversation exploring the trends, challenges, and opportunities shaping the future of the grocery industry.
Dana, can you please share some of your observations regarding the evolution of the grocery sector and how consumer behavior has changed, particularly since 2020?
Looking back at 2020, grocery stores were navigating uncharted waters. To keep up, retailers developed inventive solutions to offer pickup and delivery to consumers who didn’t want to — or couldn’t — leave their homes. From creating ad hoc cold storage in parking lots to ramping up e-commerce capabilities, the industry responded to the demand for safer, contactless shopping.
Two significant trends have since emerged. First, grocery e-commerce adoption surged, with larger retailers leveraging online ordering and delivery to capture more market share. Second, the industry split between defensive and offensive approaches to online shopping. While some grocers defended their customer base, progressive ones used online offerings to expand their reach.
What about today, in 2023? Does consumer demand for grocery pickup and delivery still exist?
Absolutely. Consumer demand continues to be strong, with recent research finding that just over 50% of U.S. consumers have returned to in-store shopping year-round. But the narrative is once again evolving for retailers. It’s no longer just about grabbing market share. Instead, the focus has shifted to efficiency, cost-effectiveness, and profitability.
The journey from getting it done in 2020 to optimizing for profitability today doesn’t only demonstrate continued consumer demand — it illustrates the grocery industry’s resilience and capacity for innovation.
Related Read: Rising to the Challenge: How Grocers Can Meet Growing Curbside Pickup Demand
Speaking of online grocery, innovation, and changing consumer behavior, we’ve seen a boost in gig economy services such as Instacart since the pandemic. Can you discuss the potentially negative impacts of this on grocers and their customers?
During the height of the pandemic, more and more retailers relied on third-party services like Instacart and Shipt to solve the challenge of home delivery. Even giants like Walmart couldn’t instantly have a vast fleet of drivers delivering orders. Leveraging these preexisting services seemed to be the most logical choice.
What we’ve observed because of this is an emerging issue of quality control in the last mile. Let’s say a gig worker delivers groceries in the trunk of their car on a 100-degree day, with no cooling system in place. We can’t be sure how long the delivery journey took or how long the groceries might sit on a doorstep in the hot sun. Inevitably, customers experience issues like melted ice cream or spoiled milk, and they blame the retailer, not the delivery service.
As grocers struggle with the actual or anticipated impact of poor last-mile experiences, more and more are wanting to control the entire online ordering, pickup, and delivery process. This way, they can ensure cold chain integrity in the last mile so products are kept in ideal refrigerated or frozen conditions until they reach the customer’s doorstep.
From what you’ve shared, it sounds like the last mile in grocery e-commerce is incredibly important. Can you discuss how it’s evolving, along with any challenges and opportunities it presents for retailers?
In the coming years, the evolution of grocery last-mile delivery and the cold chain will be heavily influenced by two factors: cost and scalability. The ability to scale at a moment’s notice is particularly essential, as grocers have to manage heavy seasonal fluctuations, such as holiday periods. Those with the right technology and processes in place to flexibly adjust to volume shifts will be better positioned to capture a larger share of the market.
Mastering last-mile delivery offers opportunities for grocers to differentiate their services, enhance customer experiences, and capture new market share.
On the other hand, significant challenges do exist. These include the high costs associated with home deliveries, the logistical difficulties of maintaining cold chain integrity during transit, and the need to manage and balance in-store and online operations. As e-commerce volumes grow, retailers need to optimize order picking and staging, often in limited spaces not initially designed for e-commerce operations. Grocers must also manage the potential disruption caused by in-store order fulfillment to the shopping experience of traditional customers.
The key to navigating this changing landscape lies in efficient process management, scalability, and innovation and in always keeping the customer’s experience front and center.
Related Read: From Costly to Cost-Effective: How Cold Storage Tech Helps Grocers Make More Money
Can you share what you see as Phononic’s role in helping shape the future of online grocery retail and CCF?
Phononic is playing an important role in the future of online grocery retail and CCF. We are pioneering the application of solid state cooling in the grocery industry, a game-changing technology that ensures optimal product temperatures throughout the delivery process, a vital factor in maintaining quality and safety.
We’ve also engineered innovative solutions for grocers to maximize their in-store footprint and increase efficiencies while capturing additional market share. One of our clients has a 64-unit grocery store co-operative in Puerto Rico, for example. It experienced an almost 70% energy savings and a 50% space savings since adopting our Actively-Cooled Tote™. This shows how our solutions can help grocers increase order volumes within the same space. In addition, our technology is reducing energy consumption, which aligns with future sustainability goals in retail.
Our goal is to enable retailers to maintain a high-quality service as they transition more heavily into e-commerce, setting a new precedent for grocery retail.
Thank you so much for your time today, Dana. We appreciate your insights on the state of the grocery industry, the trends shaping it, and the opportunities and challenges ahead. We look forward to seeing how Phononic continues to influence the industry with innovative solutions. Thanks again for joining us.
It was my pleasure. Thanks for having me and giving me the opportunity to share my thoughts. I look forward to continuing this discussion in the future as we all navigate this exciting and rapidly evolving industry.