Adjusting to a massive shift in product demand: The grocery industry has been one of the hardest hit during the pandemic. Yes, sales are up for most grocers, but they’ve had to contend with panic shopping, rollercoaster sales, supply chain disruptions, managing safety protocols and complying with ever-changing state-based mandates. Not to mention, product demand has completely shifted across the board. When schools aren’t in session, purchasing habits change. With more time at home, people are becoming their own bakers, so bakery sales are dropping. All these changes add up and grocers must adapt.
As part of our series about the future of retail, I had the pleasure of interviewing Stefan Kalb, co-founder and CEO of Shelf Engine.
Stefan started his career in the food industry in 2009 when he founded Molly’s, a grab & go food company. While growing Molly’s to over 400 regional retail locations, he discovered the problem of food waste first hand. Hungry for a better solution, Stefan co-founded Shelf Engine in 2016. Stefan feels most inspired at Shelf Engine when he gets to witness the numbers reflecting a reduction in waste and the immediate positive impact that has on customers.
Thank you so much for joining us in this interview series! Before we dive in, our readers would love to learn a bit more about you. Can you tell us a story about what brought you to this specific career path?
About a decade ago, I started my first business, a grab-and-go food company called Molly’s. After growing to 400 locations regionwide, we were struggling to maintain full shelves, while keeping shrink, or loss of inventory, low. In other words, food waste was eating into our bottom line. It was at this time that I reached out to my friend (and Shelf Engine co-founder) Bede Jordan, who just so happens to be a software engineer. Thanks to Bede’s brilliance and my background in actuarial science, we built a model and app that considerably improved perishable food forecasting, cutting Molly’s food waste in half. Bede and I quit our day jobs to launch Shelf Engine, with a mission of transforming the food supply chain by helping grocery stores reduce waste and increase sales through intelligent forecasting. That’s where we are today.
Can you share the most interesting story that happened to you since you started your career?
I think what’s been most interesting, especially early on, is seeing just how significantly the majority of grocers underestimate their food waste and spoilage rates. A lot of times when we go in and assess waste for potential partners, we find major discrepancies. We were brought into one national retail chain that was confident their produce waste was at 10%. After we compared the numbers of the volume of produce delivered vs. the volume sold, we found their spoilage rate was actually 54%. The executives were shocked when we presented the numbers, and it was a really tough meeting. But the proof was in our data, and once the executives realized how much money they could save by addressing the root causes of their waste, they turned from being our biggest skeptics to some of the most supportive advocates of our solutions.
The outcome of that experience was a real eye-opener to how grossly underrepresented the true volume of food waste is in the grocery industry. It was a validating moment that our company was onto something big.
Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson or takeaway you learned from that?
I’m not sure I can pinpoint the funniest mistake, but what’s funny is just how many mistakes I’ve made over the years. When Shelf Engine was first starting out, I can recount several instances where Bede and I were incredibly close to shutting down the company. After an investment round, when we’d make it through about half the money raised, we’d come together and have a very frank, serious conversation about the state of the business. It was during one of those check-in meetings that we had our biggest breakthrough and realized it was time to pivot our business model.
At the time, we were operating as a SaaS platform, so we were providing grocers with our software and data, but that’s pretty much where it ended. Those customers weren’t seeing the full value we could offer. Since then, we’ve differentiated Shelf Engine by shifting away from the SaaS approach and adding our scan-based trade solution. Beyond providing data and forecasting, we actually own all the inventory rather than the grocers, and only charge the grocer for inventory they sell. Ultimately, making this change has positioned us to make a real impact. So, the biggest takeaway is learning not to be afraid of change and knowing when to pivot.
Are you working on any new exciting projects now? How do you think that might help people?
We have built relationships with some of the world’s largest grocery chains and are constantly growing the roster of grocers using Shelf Engine. What this means is that we’re beginning to make a significant dent in the amount of fresh food wasted in the U.S. While obviously this is huge for grocers’ profits, it’s also an important piece of the bigger puzzle in building a more sustainable future. As part of our commitment to reducing food waste, we’re also partnering with organizations like ReFED, which is bringing together consumers, businesses, farmers, nonprofits and governments to reduce food waste and hunger.
Which tips would you recommend to your colleagues in your industry to help them to thrive and not “burn out”?
This is very real for me as a CEO right now. Retail is a tough industry, especially this year. We’re under a lot of pressure to deliver for our clients, and as a result, we’re all putting in a lot of hours. This could easily lead to burnout. To avoid that, we focus on two key things. First, making sure our culture is set up so employees can see the impact of their hard work and celebrate their wins as a team. People like to be part of a winning team and accomplish something they can feel proud of. Our engineers might be pulling all-nighters from time to time, but it’s worth it when they see the outcome of that work — like launching into hundreds of stores and making a huge dent in reducing food waste. At the end of the day, if you can hang your hat on the “why” and actually measure your impact, it makes all the hard work worth it.
Removing uncertainty as much as possible is also important to avoiding burnout. Anxiety comes from the unknown, so when we can make smart, data-based decisions, it helps reduce stress and burnout for our employees and our customers.
None of us are able to achieve success without some help along the way. Is there a particular person to whom you are grateful, who helped get you to where you are? Can you share a story?
I’ve been fortunate to have a number of mentors and supporters along the way, many of whom have made a huge impact on Shelf Engine. Specifically, several of our board members and investors, including Hans Tung, Joe Montana, Paul Buchheit and Garry Tan. In our early days when we were struggling to stay in business, Garry never doubted us. He kept doubling down on Shelf Engine. He’s been our longtime champion and brings an authenticity and compassion you don’t often find in the venture world. The first time we met Garry, it was at his house to pitch him on the company. He said we had his time until his baby woke up. We got in as much of the presentation as we could, and then left when the baby started crying. He told us to come back next week and we’d get a deal done. It was so unconventional, but it set such a personal tone for our working relationship.
Paul is another who has had a big impact on my decision-making as a CEO. Talking to him about the future of the grocery industry and hearing his stories of what it was like to start Gmail is just absolutely incredible. His perspectives give us so much practical and valuable insight to improve our product and grow the business. I’m so grateful he has invested his time, resources and knowledge into our company.
How have you used your success to bring goodness to the world?
Our country is the global leader in food waste, with more than 80 billion pounds of food wasted every year. Supermarkets and grocery stores are one of the leading contributors to this waste, responsible for about 10 percent of all food thrown away. When food is wasted, it has a devastating impact on our planet, depletes valuable resources and means people go unfed. The latter is particularly upsetting, especially when you realize there’s more than enough food to go around. Our hope at Shelf Engine is to transform the food supply chain to not only drastically reduce food waste, but feed people and create jobs along the way.
Ok super. Now let’s jump to the main questions of our interview. The Pandemic has changed many aspects of all of our lives. One of them is the fact that so many of us have gotten used to shopping almost exclusively online. Can you share five examples of different ideas that large retail outlets are implementing to adapt to the new realities created by the Pandemic?
- Adjusting to a massive shift in product demand: The grocery industry has been one of the hardest hit during the pandemic. Yes, sales are up for most grocers, but they’ve had to contend with panic shopping, rollercoaster sales, supply chain disruptions, managing safety protocols and complying with ever-changing state-based mandates. Not to mention, product demand has completely shifted across the board. When schools aren’t in session, purchasing habits change. With more time at home, people are becoming their own bakers, so bakery sales are dropping. All these changes add up and grocers must adapt.
- Recreating the in-store dining experience: As an extension of shifting product demand, in-store experiences have changed as well. Hot bars and salad bars are closed to avoid human contact. As a result, grocers are looking for new ways to replace that revenue and the aesthetics that draw customers in. Some have accelerated their adoption of new business models (like online ordering, delivery, curbside service), new partnerships (such as with restaurants to provide fresh and frozen meal kits) and exclusive specialty items. We’re seeing much more willingness to embrace transformation on numerous fronts.
- Radical change in labor and logistics: Labor has had to change radically. Early on in the pandemic, a lot of people were too scared to go to work and a lot of outbreaks in production facilities created supply chain disruptions. Supplies have been under pressure to put a lot of resources into ensuring safety for their employees. In many metro areas, the food supply depends on only a few facilities. Any time there is an outbreak in one, everything shuts down, and the ramifications extend all the way to the shopping carts of millions of people. We need autonomous warehouses and technology innovations that will improve logistics and protect the supply chain from massive disruptions.
- AI and Predictive Technology: With this year delivering a perfect storm of crisis events, many retailers are struggling. Predictive technology is one solution that can help retailers incorporate disaster recovery into their inventory planning. AI can do a much better and more accurate job than humans at forecasting sales volume during uncertain times, which in turn can reduce significant losses in inventory and profits when there’s a sudden drop in sales.
- Scan-Based Trade: A step beyond predictive technology, more and more retailers are gravitating towards scan-based trade, where suppliers maintain ownership of inventory rather than the retailers themselves. For instance, Shelf Engine is set up as a scan-based trade vendor, meaning we manage the orders, pay the vendors and only charge the retailer for what sells, helping further reduce risk and increase profit during uncertain times.
In your opinion, will retail stores or malls continue to exist? How would you articulate the role of physical retail spaces at a time when online commerce platforms like Amazon Prime or Instacart can deliver the same day or the next day?
There’s no doubt shopping habits and trends developed during COVID will last well beyond the pandemic, but we’re still finding consumers value the in-store experience, as well as the convenience and control of quickly grabbing items versus waiting around for deliveries, even if they do arrive on the same day. Plus, there’s nothing like the familiarity and comfort of your favorite neighborhood store or market.
By helping to alleviate the burden of inventory planning and ordering, AI and predictive technology will allow grocers and other retail managers more time to focus on perfecting and streamlining the in-store experience, which will continue to draw in consumers for years to come. While we don’t expect brick and mortars to disappear any time soon, of course curbside options and online ordering will continue to flourish. It’s also likely retailers will continue to reduce their square footage and in-store shelf space as they are better able to forecast demand.
The so-called “Retail Apocalypse” has been going on for about a decade. While many retailers are struggling, some retailers, like Lululemon, Kroger, and Costco are quite profitable. Can you share a few lessons that other retailers can learn from the success of profitable retailers?
One of the most important lessons retailers can learn from the most profitable stores in the industry is the importance of good data and automation. Many buyers at national chains use some sort of Computer Assisted Ordering (CAO) device, which provides basic information by SKU, like how much of a product is in store or in inventory. Because this type of system doesn’t take into account high volatility in sales patterns, and other factors like breakage, vendor shorts and spoilage, many ordering managers are left to override the software based on their personal judgment, which is unsustainable and ineffective. The most successful retailers, however, rely on AI systems that pull in data from thousands of stores and SKUs to better and more quickly react to sudden changes in sales, protecting their profits and reducing waste.
Perhaps even more significant, is that many retailers aren’t accurately calculating waste or shrink. Without using the proper method, things like breakage, theft and spoilage are left out of the calculation entirely, leading to an inaccurate assessment of shrink from the very start. Typically, when we audit food waste with new retail partners, we see tremendous discrepancies, indicating most grocers do not have a clear picture of how much food never even makes it off the shelf to the customer.
Improving in-store merchandising is also crucial to profitability. Something as simple as making sure you properly adhere to the “First In, First Out” (FIFO) method, can save tens of thousands of dollars in your store every year.
Amazon is going to exert pressure on all of retail for the foreseeable future. New Direct-To-Consumer companies based in China are emerging that offer prices that are much cheaper than US and European brands. What would you advise to retail companies and e-commerce companies, for them to be successful in the face of such strong competition?
At Shelf Engine, we know that the number one key to staying competitive in terms of pricing is reducing shrink. Reducing shrink is one of the quickest ways to increase profit, which promotes more flexibility in terms of pricing and greater capital to invest elsewhere.
We also know that businesses committed to sustainability and considered good corporate citizens build goodwill and loyalty much more easily with customers. Brand purpose, and in particular sustainability, resonates greatly with Millennial and Generation Z consumers, directly impacting shopping behavior and purchase decisions. In other words, supporting the health of our planet is a competitive advantage and will be crucial for staying ahead in the retail space for years to come.
Thank you for all of that. We are nearly done. Here is our final ‘meaty’ question. You are a person of great influence. If you could start a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂
So, this is something I actually think about a lot, partly because I have a number of really good friends in D.C. and we talk frequently about what could be done on the lobbying level to fight grocery food waste. There’s a saying along the lines of “whatever gets measured gets managed” — I like to think that if there were a national mandate requiring grocers to post a true figure of how much food they wasted on their front door for all customers to see, it would bring attention to the issue and initiate a wave of change.
How can our readers further follow your work?
Personal social profiles:
Shelf Engine social profiles:
This was very inspiring. Thank you so much for joining us!