Whole Foods Debuts Online-Order Focused “Dark Stores” Around The

FEATURE STORY — PAGE 8 NEWS & TRENDS — PAGE 12 Sam’s Club On Bringing The Digital Whole Foods debuts Shift To Warehouse Stores online-order focused “dark stores” around the United States

JUNE 2020

WHAT’S INSIDE 4 An overview of how the COVID-19 pandemic is leading grocers and consumers to embrace digital technology like never before

FEATURE STORY 8 An interview with Eddie Garcia, senior vice president and chief product officer at Sam’s Club, on how the warehouse chain is employing product scanning apps and other digital services to make shopping more convenient and safe for its members

NEWS & TRENDS 12 The latest news from around the food economy, including PepsiCo’s use of the direct-to- consumer model to deliver its products to customers

ABOUT 17 Information on PYMNTS.com WHAT'S INSIDE

WHAT'S INSIDE

4 WHAT'S INSIDE

Restaurants have closed facilities designed solely for the preparation, packaging and distribution of mobile gro- en masse during the past cery orders. Such stores have been likened three months, and super- to ghost kitchens, which serve the grow- market trips have become ing number of mobile meal orders without physical storefronts. Whole Foods has stressful as customers opened six dark stores across the country, observe social distanc- and Stop & Shop and Kroger are looking to ing rules and pick through make similar moves. bare shelves. Amazon, Target and Walmart were already Many are therefore turning to digital tech- well-positioned to adapt to this new digi- nologies to stay safe while purchasing tal reality, as they all had robust mobile and groceries and related items, and these online ordering operations long before the new shopping habits could cause lasting pandemic hit. Smaller independent grocers changes that will have profound impacts have been forced to scramble to ramp up across the food economy. their digital services as the grocery market migrates online, however. Midwestern food Recent analyses reveal just how signifi- wholesaler Winkler Wholesale Grocers is cant these purchasing shifts are. PYMNTS supporting these smaller players by adding research found that the share of U.S. con- online ordering to the services it offers more sumers who went online to shop for than 400 independent grocers in Illinois, groceries increased nearly 400 percent Indiana, Michigan, Missouri and Ohio. The from early March to late May, when 13.2 company is also helping the stores set up percent reported doing so. A large share of online ordering, curbside pickup and deliv- these consumers cited exposure risks as ery programs. the main reason to shop online (40.2 percent), while 36.3 percent pointed to greater Stocking products and keeping them on convenience or speed. These latter con- store shelves are persistent challenges fac- siderations may prove to be even more ing all grocery stores. This could further compelling as consumers begin to tire of fuel the direct-to-consumer (D2C) model, large supermarket crowds, long lines and which enables merchants to sell directly social distancing rules. to their customers via eCommerce channels and thus avoid potentially complicated and strained retail distribution chains. The AROUND THE FOOD ECONOMY D2C trend was gaining momentum before One of the most dramatic manifesta- the pandemic, but it has even become tions of food shopping’s digital shift is the appealing to larger merchants that have rise of mobile grocery ordering through traditionally relied on supply chains to pro- retail giants like Whole Foods as well as vide consumers with access to products. third-party services such as Instacart. This Food and beverage conglomerate PepsiCo trend is spurring the creation of dark stores, is getting into the D2C game with two new

websites, Snacks.com and PantryShop. shopping experiences. Change is also order com, for example. Consumers can use of the day for these retail giants, as more the sites to place direct orders for Pepsi and more consumers migrate online to do products such as Cheetos, Gatorade and their shopping amid the pandemic — and Sun Chips. demand safety when they do so in stores. Sam’s Club has been working on staying For more on these stories and other recent ahead of the curve by offering products headlines, read the Tracker’s News and and services over digital channels, such Trends section (p. 12). as app-based product scanners. For this month’s Feature Story (p. 8), PYMNTS inter- WHY SAM’S CLUB CUSTOMERS ARE JOINING viewed Eddie Garcia, the company’s senior THE DIGITAL SHOPPING CLUB vice president and chief product officer, Large membership-based warehouse about how mobile is helping provide cus- chains have long been known for offering tomers with seamless and safe shopping their customers good deals on bulk prod- experiences. ucts, as well as stripped-down, utilitarian

YUVAL MARCO general manager of fraud and authentication at NICE Actimize

6 WHAT'S INSIDE

$6.6B FIVE Value of U.S. online grocery sales in May FAST FACTS

54% 28,000%

Share of consumers who Increase in grocery reported cooking at delivery platforms' home more often during social media the pandemic engagement from March to May

100 6

Approximate number Number of Whole of Frito-Lay products Foods dark stores, as available on PepsiCo’s of mid-May new D2C website, Snacks.com

Sam’s Club On Bringing The Digital Shift To Warehouse Stores

The supermarket has become a vital insti- is the company’s Scan & Go app, which was tution in recent months, as it is one of the introduced in 2016. The tool allows custom- few types of businesses deemed essential ers to scan UPC barcodes on products as and allowed to stay open through the thick they shop and show their digital receipts to of the pandemic. This has meant that store employees before exiting. operators have had to rapidly implement The app has surged in popularity since the new health and safety rules to minimize pandemic for a number of reasons. It allows transmission risks among workers and cus- customers to hasten shopping trips, main- tomers — especially the most vulnerable. tain proper distancing with other customers These realities are casting a new light on and employees and avoid the potentially some of grocery stores’ recent innovations, most crowded part of the shopping experi- such as Stop and Shop’s handheld product ence: the checkout line. Use of the Scan & scanners and Target’s mobile ordering and Go app has increased nearly fivefold since curbside pickup services, which have deliv- March, Eddie Garcia, senior vice president ered greater efficiency and convenience and chief product officer at Sam’s Club, told for employees and customers alike. The PYMNTS in a recent interview. COVID-19 era has given these technologies “We’ve seen a strong uptick in member the potential to not only reduce frictions in adoption during the pandemic because it the shopping experience but also make it gives them the ability to pay for items right much safer. from their phones and skip the checkout Sam’s Club has been a notable player line. It completely removes the friction and in the digital innovation arena. The uncertainty of waiting in a checkout line membership-based warehouse store chain right now,” he said. has long prioritized digital innovation, both The app is just one aspect of a multipronged in its customer-facing and internal opera- digital strategy that grocers such as Sam’s tions. One of the centerpieces of this effort Club are embracing to help customers

safely and efficiently shop during the pan- Sam’s Club has adapted its existing tech- demic and its aftermath. nology platforms to accommodate seniors and other at-risk groups. Its concierge ser- TECHNOLOGIES TO AID AT-RISK SHOPPERS vice allows such customers to provide grocery lists to store employees, who then The pandemic has triggered a digital shift use a specially configured Scan & Go app to across the economy over the past few fulfill and bring their orders to their vehicles. months. Not everyone is prepared to go digital overnight and alter entrenched shop- “We were able to build the associate-facing ping and lifestyle habits, however. Senior app that powers our concierge experience citizens may face a formidable learning in just six days because we built it on top curve, for example, but they are also among of our already existing Scan & Go platform. the most vulnerable to the virus and should That’s the cool thing about technology take advantage of these new digital tools. — if you invest in building platforms the right way, you can accelerate innovation,” Garcia said. He noted that nearly 132,700 concierge transactions had been completed as of early June. The company is also enhancing the mobile device workers use on the floor. An emer- gency app allows them to quickly report confirmed COVID-19 cases and another app enables them to count how many customers are in-store at any given time to comply with capacity restrictions.

A PROVING GROUND FOR INNOVATION There is another important aspect of the new reality in which consumers are living: Millions have discovered online grocery shopping and many may gladly put brav- ing stores aisles and checkout lines behind them for good. Sam’s Club has seen orders through its website and apps increase significantly, with eCommerce revenues up 40 percent in Q1

10 FEATURE STORY

2020. These online orders may be poised to TOWARD THE FUTURE grow even more substantially, however. The The pandemic has exposed digital divides company began rolling out curbside pickup across the economy. Some businesses to all of its nearly 600 stores in June after a already had robust digital channels in place pilot program at 16 locations. and others have had to improvise to survive. “During the pandemic, the way our mem- The crisis has, in this sense, underscored bers want to shop, how they want to check the importance of having technological out and their expectations around safety systems that are resilient, agile and able and service is different than it’s ever been,” to respond to any unanticipated disrup- Garcia said. “Members are putting a lot of tive events. focus on having control over their shopping “The current crisis has taught us that con- experiences, so we had to quickly react and stant innovation is key to being prepared for provide them more choices to shop how the … challenges that come our way. The they want.” work we were already doing with tech, and A tremendous amount of work goes into the deployment of new tools at Sam’s Club making mobile grocery apps and other dig- allowed us to move quickly,” Garcia said. ital services function well and seamlessly. This is important both to keep operations Implementing such programs is nearly running in the future and to meet chang- impossible to do quickly without already ing consumer demands and expectations. having robust technology pipelines and Ample studies, including PYMNTS research, infrastructures in place — and this reality indicate that many of the digital shopping extends to unforeseen disruptive events. habits adopted during the pandemic are Garcia explained that Sam’s Club pilots likely to outlast it. new digital services at a special facility in “I anticipate technology will continue to be Dallas called Sam’s Club Now that “allows important to our members because they [the company] to test and try new things in are hyperfocused on speed and safety a test club environment with real members.” right now and I don’t think that will go away. “Almost every new innovation we roll out — Retail was already going through an evolu- including the concierge app — is first tested tion pre-COVID-19, but the pandemic has at Sam’s Club Now so we can listen to our accelerated change and pushed retailers to members, engage with their feedback and adapt, pivot and innovate.” then iterate the technology to make it the This means that innovations taking place best product possible,” he said. at Sam’s Club stores and among its customers could just be the early stage of sweeping digital transformations that will continue for months and years to come.

12 NEWS & TRENDS

INSTACART LEADS THE THIRD-PARTY Changing digital and ONLINE GROCERY SHOPPING PACK culinary habits The growing market for online grocery ordering has generated fierce competi- ONLINE GROCERY ORDERING SURGES tion among both established retail giants DURING PANDEMIC and newer technology platforms such Most supermarkets have been deemed as third-party grocery delivery ser- essential and were thus allowed to stay vice Instacart. A recent New York Times open during pandemic-related shutdowns, analysis revealed that Instacart has expe- but several studies have shown that con- rienced a more than 400 percent sales sumers are flocking to online platforms volume increase from the same period in for their grocery purchases even as other 2019. The company has surged past market brick-and-mortar stores reopen. A recent incumbents Peapod and FreshDirect, which report found that online grocery sales may be due to Instacart’s partnerships with in the U.S. totaled $6.6 billion in May — a a wide range of grocery outlets, according more than fivefold increase from August to the analysis. 2019. There has also been strong month-to- month growth, as such sales increased 24 Retail behemoths Amazon, Target and percent from April to May. Walmart already had robust online and mobile ordering operations before the pan- PYMNTS research confirmed extreme demic and have also experienced dramatic growth in online grocery shopping: The sales growth since its onset. Walmart is overall share of U.S. consumers using king when it comes overall market share, digital platforms for grocery purchases however, representing 50 percent of all hit 13.2 percent in late May — a sizable online grocery sales in late April. increase from the 3.5 percent recorded in early March. This shift to digital chan- COOKING AT HOME UP MORE THAN 50 nels has been less pronounced than it has PERCENT DURING PANDEMIC been in other areas, such as the restaurant and retail sectors. One possible reason for Consumers are putting their grocery pur- this is that most grocery stores have been chases to good use by spending more time permitted to stay open throughout the pan- in the kitchen during the pandemic, accord- demic, while others have been subject to ing to a recent survey, and many say the closures. experience is broadening their culinary horizons. The survey found that 54 percent of consumers are cooking and baking more during the pandemic, 50 percent have

discovered new brands and products and 51 percent expect their new cooking habits will last beyond the pandemic. The trend does not necessarily translate into consumers only eating salads and nutritious items, however: 39 percent are eating healthier foods, but 40 percent reported eating more “indulgent” fare. 40% New technology OF CONSUMERS solutions SAY THEY'VE BEEN EATING MORE A GROWING NUMBER OF GROCERY STORES ARE GOING ‘DARK’ "INDULGENT" The increasing popularity of mobile order-ahead and delivery services has FOOD DURING THE given rise to ghost kitchens, facilities that PANDEMIC. service multiple food purveyors without physical storefronts. A similar trend is now taking hold in the supermarket industry as consumers turn to mobile and online ordering to procure their groceries. Amazon appears to be leading the pack. The retail heavyweight initially rolled out one Whole SMART & FINAL ROLLS OUT TECHNOLOGY- Foods “dark store” location in the early days ENHANCED CHECKOUT LINES of the pandemic and has since expanded Connected technology is doing more than to six, with facilities in Baltimore, Chicago, allowing consumers to get their groceries New York and San Francisco. Dark stores without leaving their homes — it is also help- can help workers avoid some of the safety ing them stay safe when they shop in stores. concerns that stem from crowding in stores Grocery chain Smart & Final is employing a that are open to the public. Other gro- computerized system to limit crowding by cery companies, such as Stop & Shop and using physical gates that control when cus- Kroger, are planning their own dark facil- tomers can approach registers, for example. ities, demonstrating that the trend could The gates also feature screens that remind very well endure beyond the pandemic. consumers about pandemic-related safety guidelines.

14 NEWS & TRENDS

Smart & Final is one of several stores to parts of Illinois, Indiana, Michigan, Missouri roll out technologies meant to ease compli- and Ohio in setting up online order- ance with safety rules, which otherwise can ing operations. It is also partnering with create distractions for employees and lead grocery-focused eCommerce platform to tensions with customers. Grocery chain ShopHero to allow independent stores to Kroger is employing sensor-based technol- offer online and mobile ordering, curbside ogy it already uses to monitor and control pickup and delivery services. checkout lines to keep store capacity under Josh Winkler, CEO and president of Winkler 50 percent, for example. Wholesale Grocers, explained that the col- laboration aims to help its grocer partners DIGITAL PLATFORMS BRING ONLINE satisfy growing customer demand for online ORDERING TO INDEPENDENT GROCERS ordering. ShopHero’s offering also enables Digital grocery shopping is not the sole turf grocers to manage their websites as they of Amazon and other retail and technol- see fit and tailor their delivery or pickup ser- ogy giants in large urban markets. Smaller vices to their individual operations. independent stores have been ramping up online services, too, often with the help of third-party technology providers. Winkler Wholesale Grocers is assisting the more than 400 independent grocers it supplies in

Innovating the D2C left by their larger counterparts, which have been strained by pandemic-induced labor model shortages and supply chain challenges.

PEPSICO MOVES INTO D2C MARKET Several small growers selling directly to consumers and businesses are also offer- The direct-to-consumer (D2C) model has ing online ordering and pickup options to been a boon for small merchants, allowing help customers comply with social distanc- them to use online platforms to sell directly ing guidelines. There is evidence to suggest to customers without competing for shelf that these approaches are paying off, too. space at retail outlets. Even larger brands Idaho-based Kraay’s Market and Garden are moving toward D2C channels to keep received its largest single order ever during their products stocked and ready to ship the pandemic, for example, totaling $1,900. amid the pandemic, including food and bev- The largest single order it reported prior to erage corporation PepsiCo. The company the outbreak totaled about $600. has launched two websites, Snacks.com and PantryShop.com, that enable consumers to order products like Cheetos, RESTAURANT WHOLESALERS SEEK TO SELL DIRECTLY TO CONSUMERS Gatorade, Ruffles and Sun Chips without leveraging intermediary services. Pandemic-related restaurant closures have hurt owners and workers as well as Some observers believe PepsiCo’s move consumers looking to dine out. The whole- represents an important trend for the gro- salers that supply eateries with ingredients cery industry: disrupting traditional supply and other necessary products have also felt chains and providing brands with vital these closures’ impacts. Some wholesalers customer data sources. PepsiCo execu- have thus turned to the D2C model to fill the tives believe direct input from customers gap and meet surging demand for grocery purchasing various products or product deliveries. packages will allow the company to deter- mine what consumers want and to tweak Delta Produce in Washington, D.C., has its messaging and offerings to match begun selling products directly to con- their demands. sumers via its website to make up for lost restaurant business, for example. It is also partnering with Choco Market, which usu- D2C FARM SALES HELP CONSUMERS SHOP LOCAL ally connects restaurants and suppliers, to offer consumers next-day delivery options The D2C trend is also helping small-scale for everything from food products to clean- farmers offer their fruits, vegetables and ing supplies. other products directly to customers. Smaller farms are filling some of the voids

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