Grocery Dive Outlook for 2023

What does the year ahead have in store for the grocery industry?

Over the past three years, the answer to that question has been dictated by sweeping challenges that were largely beyond companies’ control. In 2020 and 2021, fear and safety concerns driven by the global pandemic upended grocery shopping. In 2022, the health crisis took a back seat to roaring inflation and a prolonged period of supply chain disruptions.

It’s hard to say at this point if there will be another dominant narrative for grocery in 2023. In interviews, industry experts pointed to the ongoing impacts of inflation — noting that, while prices are slowly starting to come down, many consumers remain financially stressed after so many months of paying more for groceries and other goods.

Experts see plenty of room for other trends to blossom in the year ahead, as well. Retail media continues to gain steam, but may not be the gold mine that many retailers envision. E-commerce promises to return to growth after cooling off in 2022. And Kroger-Albertsons may herald a renewed wave of industry M&A.

Here’s a look at the trends that experts say will have the biggest impact on grocery in the year ahead.

Inflation continues to impact consumers

While the pace of food inflation has come down somewhat in recent months, industry experts expect the fallout from furiously rising prices to continue buffeting the grocery industry in 2023.

“The financially stressed consumer is going to drive a lot of the trends that happen next year,” said Tom Furphy, a former Amazon and Wegmans executive who is now CEO of e-commerce technology company Replenium. “Shoppers are going to be looking for value.”

Overall sales are unlikely to decline this year even as people carefully watch their spending. But food retailers will probably have to step up their use of promotions and other tools to hold down costs in order to retain inflation-battered shoppers, impacting margins, said Taylor Ricketts, an assistant vice president at F&D Reports.

“I do think the profit scenario has to some degree peaked in the near term,” Ricketts said. “But compared to [the] pre-pandemic period, it's still a favorable operating environment for grocers because you're still seeing a good tailwind with demand.”

Grocers will also have to contend with competition from retailers in other sectors that look to food as a way to attract shoppers’ limited dollars, said Rachel Dalton, head of retail insights at data analytics firm Kantar. 

“Shoppers have a high level of concern about their overall ability to afford everyday essentials like groceries, so I think because of that you're going to see more of a focus on groceries across other channels beyond just traditional supermarkets,” Dalton said.

Grocers focus on personalization and value messaging

The silver lining of that ongoing price sensitivity is that retailers will have the opportunity to demonstrate that they are dedicated to holding down prices by taking concrete action to provide shoppers with value, said Erich Kahner, director of strategy and insights for North America at Dunnhumby. 

“There's potential to demonstrate empathy for customers and roll that into long-term loyalty,” said Kahner.

A heavy focus on price could prove especially beneficial to retailers with well-established loyalty programs, which provide the opportunity to track shopping preferences and deliver targeted offers to shoppers at the optimal moment. 

“It appears like after all the ups and downs of the pandemic, personalization has come out the other side mattering more,” said Kahner, adding that value now outweighs convenience as a priority for many consumers. “All that is done really only through use of customer data, not simply by seeing what the competitor across the street is carrying, or how the competitor down the road is pricing their products.”

Ricketts said many shoppers have returned to their pre-pandemic practice of shopping around for good deals, a force that will push retailers to emphasize low prices and make sure shoppers are aware of their efforts to hold down costs. “Grocers are very aware of that and they're trying to do their best to stay in front of it with the messaging,” said Ricketts.

E-commerce will return to growth mode

After skyrocketing early in the pandemic, grocery e-commerce will remain prominent but with a different growth trajectory, sources said. 

In August roughly 68% of all US shoppers said they consider themselves online grocery shoppers, with varying degrees from e-commerce loyalists to occasional users, according to Kantar data cited by Dalton. 

Grocers will continue to make e-commerce options like pickup and delivery faster, more efficient and overall better experiences, she said.

After seeing e-commerce sales plateau over the last few months, Good Food Holdings CEO Neil Stern expects growth to pick back up again this year: “In the future, we want customers to pick that channel if that's the way they prefer shopping. … It's not going to be panic driven [by the pandemic]. It's gonna be because ‘this is what I want to do.’”

David Ritter, managing director in consumer retail practice for Alvarez and Marsal, expects large players to begin to achieve e-commerce profitability in the year ahead, pointing to the Kroger and Ocado tie-up and Walmart’s acquisition of micro-fullment center maker Alert Innovations as two key examples of efforts underway with this goal in mind.

Grocers add more amenities to online shopping

After building out their e-commerce options for consumers since the pandemic started, grocers will start creating more of a seamless omnichannel experience that better blends in-store and online shopping.

Target’s Starbucks curbside pickup service and Sephora’s free samples with online orders are some of the examples Anne Mezzenga, a Target veteran and co-CEO of retail blog Omni Talk, noted of how retailers are already adding perks to online orders.

Mezzenga expects to see retailers add offerings to their pickup apps to make it easier for customers to make impulse buys, like the candy and gum items customers often add to their baskets at the checkout aisles in stores: “I think that’s going to be a huge area of experimentation.” 

Providing sampling with e-commerce orders is another area where Mezzenga believes grocers might experiment. 

She also said grocers will likely seek out more options to make pickup more efficient, such as lockers or autonomous robots in parking lots. Walmart, for example, last year started piloting snack robots in store parking lots operated by remote drivers.

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— Tortoise (@TortoiseHQ) July 28, 2022

“There’s going to be a lot more experimentation to make that curbside pickup process more efficient for the retailer and for the customer,” Mezzenga said. 

The store experience once again takes center stage

The emphatic return of in-store shopping in 2022 has prompted grocers to refocus on updating their fresh departments and center store aisles, sources said.

Look for companies to update their in-store dining options and introduce new technology like ordering kiosks, smart carts and app-friendly functions. Grocers can push their fresh departments forward even more with a farm-to-table focus, which can appeal to customers who not only want to support local brands and businesses but also desire cleaner, nutritious meal options, Dalton said. 

Some small and regional grocers will increase their assortment of fresh foods in the years ahead to stand out against larger competitors, said Kevin Kelley, principal and co-founder of Shook Kelley, a design firm in the restaurant and grocery industries.

“Right now, many grocery stores, depending on who you ask, have like 60%, 70%, 80% shelf-stable product and 20% perishable. I think you're going to see that paradigm completely shift,” Kelley said.

One small grocer that’s already taking this approach is Dom’s Kitchen & Market, which opened its first store in 2021 in Chicago’s Old Town neighborhood featuring meal stations at the center of the retail floor, with a selection of packaged goods situated off to the side. 

Retail media will grow —  and so will its challenges

Retail media for grocers in 2022 focused on collecting customer and CPG data, expanding networks and building out revenue streams. But if this expansion is to continue into 2023, grocers need to focus on improving their partnerships with brands, sources said. 

While consumer data is a driving force for retailers' media networks, brands and grocers are running into issues with quickly cleaning and analyzing data to respond in real-time, Mezzenga said.

Brands are also struggling to navigate the various media platforms that connect to all the different retailers now playing in retail media, Emily Frankel, senior vice president and head of e-commerce marketing at PepsiCo, said at the Groceryshop conference in Las Vegas last fall.

Furphy with Replenium said, "[I]f I'm a brand, and I've got to manage all these different networks with all these different rules … do I use my traditional agency to help me with that? Do I create my own internal agency to do that?" 

As they move deeper into retail advertising, grocers may struggle to keep pace with the rapid pace of innovation. Jordan Berke, founder and CEO of Tomorrow Retail Consulting said in 2023 the distinction between the “haves and have-nots” of retail media will emerge.

“You're going to see the evolution of retail media move at a far faster pace than anything the retail community has seen,” he said. “Those that are able to keep up with that pace are going to take the advertiser community with them.”

Private label will grow, but not because of trading down

Private label brands hit their stride in 2022, largely due to inflation pressures, which are forecasted to remain a looming presence for grocers into 2023.

But even when inflation tapers off, Ritter believes private label penetration in grocery will continue to rise.

“For many years, grocers have invested in their private label products because they’re more profitable from a penny profit perspective,” Ritter said. “And it’s the perfect time: [Grocers] have done this work, and now consumers are starting to struggle.”

The growth of private labels should not be credited to shoppers down trading from household name brands, despite the backdrop of inflation seen throughout 2022. Instead, trade downs are expected to continue with ingredients and consumers shifting away from natural and organic products, said Bobby Gibbs, principal in the retail and consumer goods division at consulting firm Oliver Wyman.

M&A accelerates in the wake of Kroger-Albertsons

If the proposed mega merger between Kroger and Albertsons gets a blessing from federal regulators, both grocers will likely divest hundreds of stores, giving other chains the opportunity to acquire these locations. 

But that’s not the only force that could drive an uptick in M&A activity in 2023 and beyond.

“I also think we’re going to see bigger chains that have the ability to withstand a more difficult cost environment look to acquire some of their less liquid competitors,” said Ritter.

The grocery industry is also likely to see an increase in M&A activity this year because of pressures like digital innovation and supply chain disruption, said Gibbs.

The past two years have seen a few notable tie-ups between regional grocers, including Raley’s acquiring Bashas’ and Price Chopper merging with Tops Markets, and more of those combinations could be on the horizon.

“With consolidation, there's an opportunity to simplify things for vendors that leads to lower costs across the system, and that can then pass the savings on to the end consumer,” Gibbs said.

Hanging above a ham display in a Wegmans store in Maryland, a large sign highlighting the grocer chain’s focus on “family value, every day” encapsulates a central challenge facing retailers as 2023 gets underway: convincing shoppers exhausted by price hikes that supermarkets are intent on helping them save money.

Giant Food is also pressing ahead with a campaign that it hopes will demonstrate its commitment to holding down costs. The Mid-Atlantic grocery chain is using its loyalty program, Giant Flexible Rewards, along with related signage in its stores to guide shoppers to bargain-priced essentials. That effort includes letting members use fewer loyalty points to buy certain foods, like bacon, bread and sugar, than those goods would normally require.

“We know that customers are feeling the impact of their dollar being stretched and seeing things more expensive,” said Ryan Draude, director of loyalty and digital marketing for Giant. “We want to make sure that when they come to a Giant, they feel that they’re going to be rewarded and they can walk away with something that their engagement with us gave back to them … it’s really an emotional connection that we think that we're making with customers by investing in these type of programs.”

Grocers are being helped in their efforts to deliver savings to shoppers by the recent slowdown in inflation. But even as the annual growth rate for grocery prices has come down somewhat during the past few months after hitting multi-decade highs earlier in 2022, grocers are still confronting sharply elevated prices on a host of items, including center store staples, said Krishnakumar Davey, president of CPG and retail thought leadership for research firm IRI.

That means retailers face a balancing act in determining how to continue delivering meaningful price relief to shoppers while also managing their own finances, according to Davey.

“The reality is prices have gone up quite a bit from [retailers’] perspectives,” Davey said, but “they know that the consumer cannot keep spending, so they are trying to amp up their value messaging and trying to provide value where they can.”

Center store prices have been rising rapidly

Prices for center store items — which according to IRI comprise about three-quarters of sales in the grocery industry — rose at a 14.9% annual clip in November, a level that was the fastest recorded through that point in 2022. Center store inflation came in at 8.1% in January 2022 and rose steadily throughout the year, according to statistics from IRI.

By comparison, prices for perimeter items rose in November at an 8.1% annual pace, the slowest rate seen over the first 11 months of last year, IRI reported.

Fuel for trucks has also remained expensive, contributing to the costs retailers, CPG suppliers and other companies in the supply chain must either absorb or pass on to consumers, Davey noted. Nationwide, the average cost price of a gallon of on-highway diesel was $4.55 during the week that ended Jan. 9, 89 cents above where it stood a year ago, according to the U.S. Energy Information Administration.

Retailers have increased their focus on private label goods to combat inflation. But Davey noted that even though store brands have gained market share, growth in that area has recently stabilized.

In addition, promotions — which are typically driven by product manufacturers — have slowed since the start of the pandemic in 2020, and CPG companies have so far seen little reason to step them up in a concerted way despite inflation, Davey said.

In a reflection of that, Conagra Brands, which sells products under brands like Duncan Hines, Birds Eye and Pam, has seen strong consumer demand for its goods and does not plan to increase promotions anytime soon, President and CEO Sean Connolly said during an earnings call last week.

The company will consider “surgical” promotions, such as seasonal deals “that are emotionally important to our consumers,” but believes it does not have to cut into its margins to maintain sales momentum, Connolly said.

“The ongoing durability of demand is a testament to the strength of our portfolio and demonstrates how [Conagra] has positioned our brands to continue to resonate with consumers even in an inflationary environment,” Connolly said during the call. The company’s top-line revenue growth during its fiscal second quarter, which ended Nov. 27, 2022, helped Conagra generate margins close to what it saw before the pandemic, Connolly added.

When evaluating potential promotions, food manufacturers are looking for evidence that an investment in cutting the price of a particular product was necessary to boost shopper interest in that item, said Sean Turner, co-founder and chief technology officer of Swiftly, which provides digital loyalty technology to retailers. CPG companies also want to see how promotions affect sales of other items, Turner said.

“Brands are trying to get more sophisticated” in how they direct promotions at shoppers, said Turner. “A brand doesn’t want to subsidize a purchase that would have happened, had they not subsidized it.”

Retailers are also increasingly looking to personalization technology to communicate their commitment to cutting prices to consumers, analysts said.

“Above the line, there's base prices and mass messaging and below the line, it's personalized pricing using the loyalty program and personalized promotions, and we've seen the importance of the impact of personalization grow [from] 2019 to today,” said Erich Kahner, director of strategy and insights for North America at retail data science firm Dunnhumby.

Davey said the digital investments retailers have made in recent years to build e-commerce capabilities and deal with labor shortages are providing them with a strong foundation for delivering customized offers to shoppers as inflation runs its course.

“Grocers have accelerated their investments in technology, and they are trying to make things more accessible to consumers” by taking advantage of those systems, he said.

Is a price war looming for grocers?

Arun Sundaram, an analyst for CFRA Research who follows food manufacturers and retailers, said he expects inflation to taper further in the coming months and ignite competition among grocers reducing prices in order to lure shoppers. 

Efforts by grocers to generate revenue in the face of declining prices will also make it difficult for grocers to maintain comparable store sales, especially as they start to lap price increases made last year during the later months of 2023, he added.

Grocers will need to push sales volume up to make up for the revenue pressures they are likely to face as prices flatten or even come down in some cases, Sundaram said. Grocery inflation, which spent much of 2022 well above 10%, could come down to the low single-digit range a year from now, which could push grocers to boost their efforts to use lower prices to drive sales, he predicted.

“A year from today, the competitive environment will intensify even more,” said Sundaram. “I think you'll see retailers race to cut prices and try to get more shoppers to come to their stores.”

Retail media in grocery hit its stride in 2022, with companies integrating new advertising technology, improving the collection of customer and CPG data, expanding networks and building out revenue streams. A few major chains, like Ahold Delhaize and Albertsons, established their own media firms while even small grocers, like Midwest regional Woodman’s Markets, joined the party.

Retail media spend eclipsed $40 billion in 2022 and is expected to push past $60 billion by 2024, according to eMarketer. As reported by the latest WARC Media analysis, global spending on retail media is expected to climb 10.1% in 2023 to $122 billion, making retail media the fastest-growing media channel. 

“Every CPG brand will have retail media included in their budget in 2023, many for the first time,” said Jordan Berke, founder of Tomorrow Retail Consulting. “This is the year everyone, from an advertiser standpoint, jumps into the market.”

As 2023 progresses, retailers are ready to create more engaging content, build customer loyalty through more targeted advertisements and take ownership of the data uncovered through retail media, experts say. 

At the same time, retailers and brands aren’t always on the same page, with work still to be done on improving data processing, results measurement and managing relationships long-term.

Make it entertaining

As retail media grows, grocers aim to expand beyond banner ads and sponsored searches to create more personalized, entertaining experiences that promote customer loyalty. 

“You’re starting to see retailers focus more on the telling of a story and creating engaging content to tell that story that they weren’t doing before,” Anne Mezzenga, Target veteran and co-CEO of retail blog Omni Talk, said. “Retail media is just working harder, especially because the more information you get on that customer, the more you can personalize that content.” 

Producing video content is one way retailers are trying to liven up brand partnerships and advertisements. 

Short clips that act as shoppable videos and that highlight store offerings, products and specialty departments are increasingly finding their way onto retailers’ own websites and digital platforms, according to Jason Holland, chief business officer with Firework, a livestream and shoppable video company. 

“[F]olks are coming there to actually make a purchase and convert,” Holland said. “That’s where the power of retail media is going into the future and really takes off.” 

These quick videos mimic content on popular social media apps like TikTok and Instagram, and are the key to tapping into retail media that reads, not simply as an advertisement, but as entertainment, Holland noted.

As shoppable video grows to be more engaging and personalized, consumers will be encouraged to purchase new products as they can see how to best use them, according to Holland.

With retail media continuing to evolve online, it’s also beginning to reach new avenues off-site, beyond retailers’ own platforms. 

“A retailer has limited inventory on its app… there are only so many folks that are on that homepage,” Berke said. “Off-site opens up the entire internet of traffic and inventory to be able to reach consumers, and by using retail media customer data and identity, you can target the patrons out there on the open internet with almost unlimited inventory and engage them in a new way.” 

Connected TV (CTV) is an off-site retail media strategy gaining significant momentum among grocers, as it gives them the ability to advertise directly within streaming platforms like Netflix, Berke said. Kroger, Walmart and Albertsons have all recently announced CTV initiatives.

The video advertisements created by retailers broadcasted through CTV, in addition to hitting a larger audience, are also able to be personalized. The videos shown on a consumer’s television are based off data collected on a larger scale, showing consumers products they’ve shown interest in while shopping with the retailer, according to Berke.

In early January, Albertsons and Omnicom Media Group (OMG) announced a partnership that would focus in on connecting audience data that has not been able to be captured via CTV alone. OMG’s Omnicom Omni marking orchestration system, which tracks audience data, used alongside Albertsons Media Collective data will allow the media service division to purchase CTV advertising directly within The Trade Desk platform, per the announcement.

Digitization of retail media is also becoming more prominent within grocery aisles, influencing consumers at the point of purchase.

Earlier this month, Cooler Screens, which installs coolers doors that display advertisements and product information while collecting shopper analytics, announced it is expanding beyond the frozen and refrigerated aisles to reach store endcaps, checkout lane coolers, pharmacy screens and other areas. 

With major grocers as partners — including Kroger and Giant Eagle — Cooler Screens aims to quadruple the number of screens in-stores to 40,000 total in the next 12 to 18 months, the company told Grocery Dive at the NRF Show in New York. 

In-store retail media is becoming more mainstream, with grocery stores making smart carts available to shoppers and display screens showing video content seen throughout store sections. However, the benefits of in-store advertisements are not as clear-cut for retailers and may take a backseat in development compared to on- and off-site retail media, according to Berke.

“From a consumer impact perspective, in-store screens, coolers and otherwise can be really effective,” Berke said. “However, from a media business model perspective, we’re less clear it is an obvious win given some of the uncertainty around who owns it and how is that money is reflected in the [profit and loss statement].” 

 

Making retail-brand partnerships work

For all the promising innovations flowing into retail media, grocers still have work to do in order to meet suppliers’ expectations for performance and measurement.

The data collected from digital advertisements allows grocers to better understand consumer buying habits while also informing operations for suppliers. As retailers establish their own media operations, however, they risk becoming overwhelmed with data to process. 

For retailers with multiple brand partnerships, the data collected from retail media — which looks at consumer behavior, buying habits and in-store versus online purchasing — oftentimes comes in too quickly to be properly deciphered and redistributed to brand partners by retailers’ analysts, according to experts.

Even when data can be fully reviewed and presented to brands, each retailer has its own metrics, making it difficult for brand partners to decipher what retail media campaigns and strategies are most effective, Kristi Argyilan, Albertsons’ senior vice president of retail media, said at the NRF conference. 

As more retailers build up their own retail media networks, Mezzenga predicts retail media firms will consolidate to combat the stretched-thin data collection system. Consolidation, she notes, would help streamline technology and data coming in for retail media teams.

Some grocers are taking steps to improve data collection and sharing. Albertsons is working to “move to incrementally” sharing retail media data findings with brand partners as well as giving them transparency into how the company calculates these numbers, Argyilan said during an NRF panel. 

“Our measurement role feels like a false barometer of how well [a brand is] doing and especially if a client can’t compare us to somebody else,” she said. 

From there, Argyilan explained that Albertsons wants “to have an API for our measuring capability that can then plug into bigger marketing mix modeling that a lot of our clients are doing.”

Albertsons has invested in a number of third-party partners in order to grow its retail media arm and experiment with new technology. However, the grocer’s ultimate goal in the coming years is to bring all retail media under its own brand, and has kept this dialogue open with media companies. 

Another challenge for grocers is the pace of innovation in retail media, which advances not at the pace of retail but at the pace of media, Berke said. This means 2023 is shaping up to be the year when the divide between advanced, well-capitalized retail media ventures and smaller ones will widen considerably.

“Innovation in retail media occurs at three times the speed of e-commerce. And so the ability to keep up with advertisers’ needs is more challenging than even the core e-commerce business for retailers,” Berke said. 

While technology companies like Google and Meta view retail media innovation and data processing as “old school,” it is a very new concept and reality for grocers and food retailer, Berke noted. However, with the grocery sector actively developing and focusing on this challenge, the system will improve.

“In 2020, at least half of the leading grocer CEOs would view themselves as not being in the media business,” Berke said. “Today, very few would claim they are not media businesses or don’t need to be a media business.” 

When Wegmans announced last September that it would no longer allow shoppers to use their smartphone to scan and pay for items in its stores, the company sparked a firestorm on social media among customers disheartened by the loss of convenience they faced as a result of the retailer’s unexpected move.

The East Coast grocery chain blamed unspecified “losses” stemming from the scan-and-pay service for its abrupt about-face on a program the retailer had trumpeted as a way to give people “the ability to shop how they want” when it rolled out the service in 2019. Wegmans suggested it might bring the service back if it could make “make improvements that will meet the needs of our customers and business,” without offering further details.

But while Wegmans concluded that letting shoppers use self-service checkout technology to breeze through stores came at too high a price, a host of other grocers, including Meijer, Hy-Vee, Giant Food and Kowalski’s Markets and Walmart, continue to offer scan-and-go as an option for shoppers looking to avoid traditional checkout lanes. In addition, other food retailers operating in the U.S. are in talks with vendors about potentially adopting the technology, according to industry officials.

One reason for that interest is that many shoppers have become so accustomed to using their phones to shop for groceries online and search for product information that the ability to use the devices to make in-store purchases is a natural next step, said Randy Crimmins, chief strategy officer of Stor.ai, which provides digital engagement technology to regional retailers.

Stor.ai also sees convenience-focused solutions like scan-and-go technology as a way for smaller retailers to stand out against larger competitors, Crimmins added.

“It’s such a fragmented consumer marketplace out there today that you want to make sure that you’re offering everything you can to appeal to your shoppers and make sure that you not only grow your shopper base, but your retained base, because everybody is nipping at you,” Crimmins said.

Crimmins’ company, which was known as Relationshop until it purchased the Israeli e-commerce firm whose name it now uses several weeks ago, has been working on a scan-and-go system for the past year and is now testing the technology with an unidentified retailer. Stor.ai intends to move ahead with a live deployment of the system later this year, Crimmins said, adding that the company sees scan-and-go technology as a way to reach more shoppers with features that let people access customized nutritional and other information about products.

Nico Müller, chief commercial officer of Shopreme, a scan-and-go technology supplier based in Austria, said his company has also seen interest in the service from U.S. retailers. The company has had conversations with a “large international retailer” that has a substantial presence in the U.S. about rolling out its system, Müller said.

Shopreme, has been offering scan-and-go systems since 2016, and the company’s technology is now in operation at about 1,000 stores in Europe. Shopreme’s clients include German supermarket chains Rewe, which began using the company’s scan-and-go system last year, and Penny, which adopted the technology in 2021.

Mining shopping patterns to stop shrink

Even as they promote the benefits of scan-and-go to retailers, Shopreme and Stor.ai are paying close attention to the drawbacks of the technology.

Müller said that while scan-and-go carries the inherent risk that shoppers might inadvertently or willfully neglect to scan items, Shopreme’s system is designed to mitigate the potential for shrink by analyzing shopping patterns to identify people whose activity warrants stopping them for an audit.

The system pays attention to factors such as whether a shopper has used scan-and-go at a given retailer in the past, their shopping history and the items they are purchasing, with a goal of keeping spot checks to a minimum to avoid unnecessarily inconveniencing consumers, according to Müller.

“There are other parts of experience that are more fun to focus on, but loss prevention is a big topic, of course, and it’s always the first question that is asked when speaking about mobile scan-and-go” with retailers, Müller said. “We have an engine that does nothing else than evaluating which customers to select without making it a hassle, because of course we want to have a smooth experience.”

Müller said Shopreme’s experience working with retailers in Europe is evidence that retailers can find ways to balance their interest in stopping theft with the benefit of offering shoppers the convenience of avoiding a checkout counter. “They wouldn’t have done this if they would see large losses there,” he said.

Crimmins said Stor.ai has also focused on developing methods to limit spot checks to people who are mostly likely to pose a theft risk as a way to avoid inconveniencing scan-and-go shoppers. The company’s approach to minimizing shrink is built around a retailer initially limiting the service to customers who are known to a store, and then gradually making it available to more people based on the retailer’s tolerance for risk, he said.

That method resembles the way Walmart handles its scan-and-go program. The retailer requires shoppers to be enrolled in its Walmart+ membership program, which costs $12.95 per month or $98 per year, in order to use the service.

“Most of our feedback from our testing and from other retailers that have [scan-and-go] applications is that the benefit of having scan-and-go outweighs the risk or the actual amount that they’re losing through fraud,” Crimmins said.

Instacart, which offers scan-and-go as a component of its Connected Stores suite of technologies for retailers, has also focused on developing strategies that keep shrink to a minimum without taking away from the speed and convenience that underpins scan-and-go, said David McIntosh, the vice president in charge of the initiative for the grocer-focused technology company.

Connected Stores also encompasses Instacart’s next-generation Caper smart carts, electronic shelf labels known as Carrot Tags, technology that provides out-of-stock alerts, list-making capabilities for shoppers, and FoodStorm, which allows consumers to order prepared food using in-store kiosks.

Instacart’s scan-and-go technology, which the company calls Scan & Pay, includes software that can identify shoppers who should be stopped for an audit based on factors such as how they are shopping, their scanning speed and whether they are familiar to the retailer, McIntosh said in an interview in September, when Instacart unveiled its Connected Stores initiative. Instacart’s approach to scan-and-go also involves equipping store employees with tablet computers they can use to monitor people’s behavior as they move around the store, McIntosh said.

Trust is a central issue

While checking selected customers’ orders might help keep people from walking out with items they haven’t paid for, making shoppers scan their items a second time can be seen by shoppers as intrusive, said Neil Stern, CEO of Good Food Holdings, a West Coast grocery chain that was the first to sign on to bring Instacart’s Connected Stores program into a supermarket.

Good Food Holdings has not yet committed to add scan-and-go capabilities to the store where it is piloting other technologies in the suite, Stern said.

“We do not have scan-and-go, and I don’t have any immediate plans to try” the technology in Good Food Holdings stores, said Stern, whose company runs several dozen grocery stores under banners including Metropolitan Market, Lazy Acres, New Seasons Market and Bristol Farms. “That doesn’t mean I’m negative on it. I just don’t have it in my IT plans for 2023.”

Stern said his cautious approach to scan-and-go stems in part from the audits that are baked into the concept. “It takes away a little bit of the customer experience you’re trying to provide,” he said. “It’s taking time or it’s saying, ‘I don't trust you,’ and neither one of those is the message you necessarily want to be sending out if you're using this product.”

Gary Hawkins, founder and CEO of the Center for Advancing Retail & Technology, said it isn’t clear whether shopper demand for scan-and-go is strong enough to justify the costs. “It’s something that was developed because technology enabled it, not necessarily because there was some huge shopper demand for that capability,” he said.

Hawkins added that he sees scan-and-go technology as a stepping stone to frictionless checkout solutions that use artificial intelligence-driven cameras to automatically identify and record items as people remove them from store shelves. While only Amazon has deployed the technology, known as computer vision, in full-size grocery stores, Hawkins said he expects more retailers to embrace it going forward as they look to amp up convenience without having to accept the risk people won’t pay for some items.

“That’s where I feel this whole space is going to wind up, simply because of the way it transforms the shopping experience and the multiple benefits that it brings to the retailer,” Hawkins said.

Müller, however, said he is not convinced that computer vision will overtake scan-and-go anytime soon because of the cost and complexity that accompanies installing the cameras and other equipment those systems require.

“For retailers, it’s a huge investment to set up a store” with a computer vision-based checkout system, said Müller. “And we think that mobile scan-and-go, if done well, is a great technology at this time, and I think it will stay so for a considerable time.”