Lost in the Supermarket

AI Comes To Fresh

September 24, 2021 SupermarketGuru
Lost in the Supermarket
AI Comes To Fresh
Show Notes Transcript

My guest today is Matt Schwartz , the CEO and co-founder of Afresh, an AI technology company, that builds solutions specifically for the complexity of fresh food to radically reduce food waste. One of our nation's biggest problems and multiply groceries profitability, and make fresh nutrient dense food accessible for everyone. He started Afresh, because his deep experience working in food led them to believe that improving the food system is our single best path to improving human and environmental health.

Phil:

Welcome to Lost in the Supermarket. My guest today is Matt Schwartz, the CEO and co-founder of Afresh, an AI technology company, that builds solutions specifically for the complexity of fresh food to radically reduce food waste. One of our nation's biggest problems and multiply groceries profitability, and make fresh nutrient dense food accessible for everyone. He started Afresh, because his deep experience working in food led them to believe that improving the food system is our single best path to improving human and environmental health. Matt, welcome to Lost in the Supermarket.

Matt:

I'm very excited to be here.

Phil:

So I know Aresh is a series, a startup you're based in the bay area. Um, you've got a a hundred million dollar valuation. Um, you've raised 32 million in funding. Uh, so first of all, congratulations on all that. Uh, but let's talk about the Afresh operating system from Afresh, um, how do you really help grocery stores optimize their ordering their supply chain, especially now that the supply chain, you know, is broken when it relates to fresh foods, we've seen, you know, Tyson announced that refrigerated transportation is up 10.4%. They've got to raise prices. We have farmers that frankly are digging under their crops because they can't find trucks. So how are you pulling this all together to help us?

Matt:

Yeah. I love that question and what we came to observe and starting the company I'd worked in food had experienced in some of the consumer packaged goods landscape and got more exposure to fresh food and the perimeter. And it became apparent that Afresh is really, multiplicatively harder in the supply chain and inventory and forecasting every step of the way. And then to your question, after the pandemic started, it was dialed up even further. And we saw the massive disruption to meat supply and some of the statistics that you're talking about. So from a foundational perspective, the first part was just to get your head, get a handle around store operations, ordering for fresh food agnostic of, are we in a pandemic or not? And the first thing we did was focus on store ordering. So believe it or not in 2020, um, do I guess 2017 when we started the company, the status quo for ordering perishables in a supermarket was still to employ pen and paper and if not, pen and paper to override, um, some kind of other system using manual judgment, you know, human judgment of a produce manager or a meat manager. And so the first product we built within our product portfolio, which is evolving into the pressure operating system was a store or store level ordering solution built specifically for produce I'll pause there, but, um, can get more into the pressure operating system. But that was really the first starting point was can we inject technology to optimize store level ordering for fresh food?

Phil:

So when we look at produce in particular, it has one of the highest waste factors. Um, you, you have managers, as you've said to this day that are using pencil and paper and keeping their fingers crossed that they have some idea of what to order for the consumer or what they're going to get. And just about every supermarket that I walk into have these huge bins of apples. Um, and they, and they have the bins of apples there because it gives them, you know, a lot of flexibility, most apples are in cold storage for a year, year and a half. So it gives them the flexibility it's colorful, uh, now that you see apples in yellow and green and red and all different shades of red. Um, so, you know, I think starting out in produce was very smart because it's one of the biggest needs that the store has.

Matt:

Yeah. I really appreciate that perspective. And it's interesting. I think one of the fascinating things for us was in starting the company. Why had no, why was it on pen and paper? Like it is the highest trunk area. Why would that be the case? And I think we came to find very quickly, um, you know, we were told by a lot of people in the grocery industry, well, you all are crazy. You know, why are you trying to do, yes, it's a huge opportunity, but it's also massively complicated. And this big problem, because you've got apples that are sold by weight, or sometimes they're sold by eaches or they're shipped by the case, or sometimes they're shipped by the pound. Um, you have different seasonality and varietals that become available depending on the produce product you've got shrinks. So you actually, it's really tough to understand what your actual inventory is. You have miss scans at the register where somebody might be marketing that gala apple as a pink lady or as organic when it's conventional. And so all of those things deprecate the accuracy of existing systems that were built for non-perishable goods to work in Afresh. And so the challenge and the opportunity was to go for fresh first and go for produce first and to build a system that was tailor made for the complexity of that department.

Phil:

So, um, I read that fresh those stores that use Afresh, um, in produce, they can increase their operating margins by 40%.

Matt:

That's correct. So shrink, it turns out is a massive of the profit, a margin of any grocer. Now we were talking earlier about pen and pencil, paper and pencil, um, and the manual processes that are used. And the one, the one quick thing I would just say is, uh, while there's a ton of incremental opportunity to do better as is evidenced by the transformation that we have on profit, um, it's pretty remarkable how low shrink was on an absolute basis going in so 8% or so six to 8% in the produce department that said, if you're able to get produce shrink down to three or 4%, uh, if you're thinking about a net margin of two to 3% for the overall store, you can have a multiplicative impact on profits. So the reduction of shrink in addition to driving additional top-line sales, by reducing out-of-stocks increasing freshness, as well as incremental labor efficiencies that can come from some of this automation all adds up to an operating margin impact. That can be pretty transformative.

Phil:

You talked about food waste that afresh can, can really help a retailer from a food waste standpoint. Um, and as I said, you know, it's one of the biggest problems that we have. And now, as, as we look at climate change, we look at wildfires in the Northeast Northwest, sorry, part of the country, uh, destroying farms, uh, hurricanes. I mean, we have to change the way that we, um, grow our food and where we grow our food. Number one, and then, you know, get food waste under control. You know, it's estimated not just for produce, but all food waste. We waste about 40% of, of all of our food. Um, what about those retailers that are using Afresh, how, how are they mitigating food waste and having a numbers you could share with us?

Matt:

Yeah. In addition to all of the issues you were talking about with climate and the impact there, the other dynamic is that our population of people is growing from something over 7 billion to some people say 10 to 11 billion by 2050. So there are just a lot more mouths to feed across the world. In addition to a challenging environment, a set of issues when it comes to yields and how much food we can grow and things like this, and a limitation on the amount of arable land that's on the planet. Um, so it's a big deal to get more efficient with how much food we throw away versus how much food is grown and how much needs to be eaten, uh, specifically to answer your question, retailers using a fresh have seen 25% or higher reductions to their shrink from a baseline perspective. And that's not on a subset or optimistic selection. That's cherry picked of specific items. It's a departmental, uh, impact of before and after coming into their stores. And that's driven again through this initial intervention and the broader set of interventions we build, but starting with store-level ordering, which is quite simply, uh, if right now I'm guessing that I need 10 cases of bananas to order, and I can order nine. It sounds like a minor shift, but across a thousand items in every store ordering every day across, you know, hundreds and then thousands of stores, it adds up to being a remarkable reduction in the amount of food that's wasted, um, on a day-to-day basis.

Phil:

So when we, when we look at Afresh and we talk about the AI that's involved, the technology that's involved, um, you mentioned, I might be able to buy nine bananas instead of 10 bananas. Uh, what kind of predictive nature, um, do do retailers get from using a fresh,

Matt:

I'll talk about the predictive nature, like the underlying skillset. And AI is one of the core competencies for us as an organization, starting from Stanford's. Actually, our CTO is a PhD in AI from Stanford, and now has become a professor at Cornell tech teaching AI. So at the absolute bleeding edge of what's possible with this technology, um, I actually think about that as just one component though, in a broader set of capabilities, that's required to drive real impact because at the end of the day, you can create a beautiful demand forecast and have that out in the ether. But grocers operate in the rugged dynamic real world where you've got to make real decisions and you've got product it moving, flowing in and out, and you've got store teams that have to actually change their behavior to get anything done. And so the AI that we build sits within a workflow that's digitized and used by a produce manager on a tablet, on a, on an iPad to go about their daily workflow. We get rid of the pen and paper process, replace it with the iPad, if it kind of rhymes and resembles their existing workloads. So it's easy to adhere to. And then it employs the AI to drive at that optimization for every item every day. And so what the grocer's getting from an AI perspective is the absolute cutting edge of this technology in forecasting, but also in understanding how many bananas are in the store from an inventory perspective, which is a huge challenge. And then the wrapper of inventory forecast case capacity when the trucks are coming in, um, all of these other dynamics that, uh, lead to an optimal order of nine versus 10 versus 12 cases of bananas that I'm going to order every day.

Phil:

I know that you work with, uh, big box stores, club stores, small retailers, big retailers. What's the one biggest challenge that you have, uh, when you go into a store and, and you expose them to this and you know, what, what are the questions that they have? Uh, what are, what's that one guy, you know, who's been in the produce department for 40 years who loves his pen and paper, and he's going to give you a hard time and try to convince everybody else not to listen.

Matt:

Yeah. That's why I speak to, you know, kind of this app and this intentionality around user design as being so critical, we focus a lot on that and we have to make the system usable by the 40 year old, 40 year veteran, um, you know, older, more experienced produce manager, as well as the backup night clerk or whoever, you know, is handling the produce department while the veteran is on vacation for that day. And that's increasingly a challenge with, um, labor issues in, in the grocery industry and in every industry in retail. Um, and so I think, yeah, one of the biggest challenges we have is, um, that historically was a challenge was driving that adherence, that adoption, that belief from a varied set of constituents when it comes to experience and ultimately the way that you do that is just by making lives, their lives easier. You know, I think a produce manager can start skeptical, but if they see, Hey, this workflow is helping me handle product more easily, I'm finding that the recommendations while a lot of the time, I might've guessed the same thing. It's actually better in the times when I trust it. And that leads to a back room that's less full. So I'm not breaking my back rotating those heavy cases of apples that you were talking about earlier, it begets this trust. Um, and that's one of the things that I'm really proud about with our system is that at scale, our retail partners are seeing 95 to 97% adherence, not just to the recommendations we drive, but also to the processes that are driven in the, in the workload. So it's really gaining traction, um, by the users. And, uh, that's in the context of historically these systems when employed in the fresh departments have been down at 30% 30, or even lower percent adherence because of, uh, some of that skepticism that you were talking about.

Phil:

So two more questions, then I'll let you go. Cause I know you're busy. One what happens after produce? Where's the next part of the grocery store that you're, that you're focused on.

Matt:

So we're going to be covering store-wide fresh. So that means the protein departments, um, meat and seafood, as well as baked goods, food, service, prepared foods, the rest of fresh. Um, I have been coached not to, um, share the explicit timing cause I don't want to give away our, our launches, but, um, I would say look out for that soon.

Phil:

Okay. And last question, you know, I am the CEO of a major supermarket chain. You and I wind up in the same elevator. You got 60 seconds. What's your elevator pitch.

Matt:

The future of your business is fresh. It's the strategic heart. And what sets you apart from Amazon and other e-commerce players at the same time, though, if you were to look at your it budget, you'd find that almost none of your technology is built to optimize your fresh departments to win in the 21st century. You need to invest in your fresh departments to innovate there and at the hardcore elements of your supply chain, your store operations, your merchant merchandising, where they in turn interface with e-commerce, which is the other big future driver of your business. You need a fresh first system to enable you to win and be the best in fresh. And if you invest in fresh and from a technology perspective, that'll mean pressure food for your customers. That's a competitive advantage in the longterm, more loyal customers. And from a bottom line impact perspective, the shrink reduction sales increase labor efficiencies you'd get from an immediate profit transformation perspective would enable you to demonstrate massive wins to your shareholders and also propel that strategic growth of the future. So, uh, I think that you'd be, I'd love to talk to you about, um, investing in your fresh business and, uh, seeing what Afresh first technology can do to transform your company.

Phil:

Matt, what you're doing is important. Uh, it's well thought out well articulated, thanks so much for joining us today on

Matt:

Thank you. Um, that's very kind of you, and I'm very grateful for the opportunity to chat.