Startup Idea: Grocery Store "Framework"
OK, so here’s an idea for anyone with the resources to pull it off. I’m just not in a position to ever get this one moving, so its out there for grabs and refinement. (If you run with this and its a massive success at least have the decency to credit me for the idea!)
What:
A cloud software-based solution to the problem of creating sustainable independent groceries in dense urban areas.
Problem:
In dense major cities, especially poor neighborhoods, there is an epidemic dearth of access to proper grocery stores where locals can buy healthy (or at least fresh) food. Google and you’ll find dozens of stories on it (here’s one). Anyone who lives in a dense urban walking neighborhood knows the drill - you either get bodegas / liquor / dollar stores with some way overpriced expired or packaged crap or you have to drive out 20 mins to go to a supermarket. If you don’t have a car and don’t live in a pricey neighborhood you’re basically condemned to eating out every night unless you have a lot of disposable time for food shopping.
Fortunately here in North Los Angeles we all have cars and ample grocery stores but for South LA its such a problem there’s been legislation passed. The severity of this problem varies from region to region and from neighborhood to neighborhood. Its something that could be overlooked by the startup class, because it simply isn’t an affliction that most wealthier neighborhoods and suburbs suffer from. Whole Foods and Trader Joes are ready to fill the gap in rich urban neighborhoods, and places like the suburbs it isn’t a huge problem because everybody has a car. But in a place like my hometown of Philadelphia it’s a big problem. I’ve lived in neighborhoods where access to a normal-price supermarket involved a 30min+ bus ride.
There are a complex number of factors involved here, which I’ll admit I personally don’t fully grasp 100%. In some areas its a problem of supply and admittedly in some cases its a problem of demand (because some poorer folks don’t really get the value of spending money on groceries when they can hit up the McDonald’s dollar menu every night).
But I imagine a lot of it has to do with distribution, competition and the cost incurred with keeping ample fresh stock supplied in a small store with a relatively small local consumer base. You want to have enough selection and supplies to make customers happy and make sales, but you don’t want to order too much or it costs you money. And buying on a smaller scale with a high-rent, high-risk property everything just costs more. Its impossible to compete with big chain grocery stores on these terms and at some point the balance of power shifted so far in favor of the chain supermarket that all the resources out there for independent grocers dried up. Its hard enough to have a small grocer make sense competing with big stores and even harder when your local consumer prefers quick takeout.
Solution:
A distributed socially-enabled software and hardware platform for independent grocers. The goal here is to keep the store stocked but reduce the cost of goods sold to be at least semi-competitive with chain stores or fast food and increase profit margins so that running an urban independent grocery store is a financially sustainable business model.
Basically I imagine that there could be, at least in part, a way to resolve some of the problem by using cloud-enabled technology.
Now I don’t know too much about the grocery business, but what I do know came from years back when I worked in an mom & pop bookstore ordering soft drinks & snacks for the cafe. Back when I used to do this, it was a guessing game based largely on comparing historical sales and ordering cases of drinks and food based on guessing demand. If a product didn’t sell, it sat there in the case forever wasting space. Sometimes you buy too little and run out at peak times. When you have only 2 drink refrigerators and 3 sqft of stockroom space there’s not a lot of room for unsold product. And the only metrics you have to go by are pieces of paper and a system of counting & writing down the number of unsold drinks in the case. When you introduce the testing of a new product into the mix there is a lot of risk involved. In a small store with limited resources there’s less room for margin of error.
A better Point of Sale unit would certainly make sense and I’m sure they exist, but without being able to completely model demand you’re pretty much stuck in the same guessing game. And being a little store you don’t get much purchase power when you’re buying one case of product as opposed to 10.
Now I imagine for a mega-supermarket chain like Safeway or Walmart its simply a matter of looking over software-generated detailed sales metrics. Chances are they have a way to accurately model consumer demand down to the shelf-level and make all purchasing decisions based on that. So not only do they have their own distribution chains and ample stock space but they can also reduce waste on a level that a small grocer just could never dream of.
By using realtime metrics to monitor supplies and distribute stock across multiple grocers you could accurately predict stock needs and prevent shortages or overages. Better yet, if you could get local consumers into the mix and track their habits to anticipate purchases on an individual level you’d get an even better picture of what to order and when. The ultimate solution would be to combine the purchase power of multiple small groceries, take any overstocked items and transfer them over to a store with greater demand, essentially building a federation of grocery stores each acting as a micro-distribution center. Stores could buy and sell overstock across a local marketplace before it expires.
Ideally, what could be accomplished is an Adsense/CPC-like system where grocers only ever pay for the product they sell or lose, and everything else goes back into the stock pool. For example: Store A buys too much wheat bread, they sell only 10% of whats needed. Store B needs wheat bread. The system automatically tells store B that store A has too much wheat bread and by some delivery mechanism transfers the bread from store A to B. I imagine a delivery truck would make rounds at different intervals all day so that it could pull multiple stores into the mix. You could have some stores specialize in certain products but be flexible enough to carry everything you need. So a grocery owner who specialized in cheese could always have just enough fresh bananas around to be useful and vice versa.
For the consumer, they get a website with an account system and some sort of smart card / mobile checkin. So if you’re ever worried you might go to the local store and they’ll be out of what you need as long as you punch in what you’ll be buying 12hrs ahead of time the store will try to stock enough of it. Plus you can use the card to make purchases, track your habits and help the store determine loyalty and consumer behavior.
Business Model:
Selling the software and digital hardware packages to the grocers. Perhaps starting and flipping a few stores and delivery services to get it going. There’s probably opportunity to take a cut from marketplaces using the platform, upsells, upgrades etc.
Challenges:
The challenge is how to roll this out. In an ideal scenario the food distributors would be in the mix and agree to the pay-per-product deal. But they are not a tech-savvy bunch and smaller distributors would probably never see the value in it. If you tried to build your own distro center you’d end up with a Webvan scenario. So the federation would have to be flexible enough to work in the current system.
For grocers it would be an uphill battle to sell this on them at first, as the kind of person that opens a grocery store probably isn’t thinking about social media and sales metrics as much. So the trick would be to sell it as an advanced Point of Sales unit package with the registers, hardware and all and pitch them on the cost savings. Working with local government to take some initiative in making sure the stores have rent control, police and tax incentives would help too.
Also an obvious problem is that you need a seed group of local grocers to all be in the federation. Its possible a hack to this would be to actually subsidize the opening of a test independent grocer federation in a denser city that needed it. My hometown of Philly comes to mind, but I imagine NYC might be an ideal environment to make this work. (Come to think of it this might work better in Europe.) This would need either some clever cooperation or a capital expenditure. As a software startup minimizing the amount spent on the seed group is crucial, it would be very important to sell the system to at least some stores first before doing the beta run.
Anyhow, I would greatly appreciate it if this system were in place by the next time I move back east. Feel free to forward this around, criticize, comment whatever. Its in the public domain. Thanks -Ron
