Startups Put Digital Technology in the Grocery Aisles

HORICON, Wis. (Milwaukee Journal Sentinel/TNS) -

Mike Hansen, a resident of this small, southeastern Wisconsin town, got a computer six years ago but has yet to set up an online connection.

Hansen, however, has started borrowing an iPad from the service desk at a nearby Piggly Wiggly store to do his weekly grocery shopping.

The attraction: an app the grocer makes available to its customers. It gives them savings and loyalty points while they’re shopping and provides valuable data to the grocer and product manufacturers.

As he makes his way through the store, Hansen, 65, scans bar codes from milk, cheese, mushrooms and other items as he puts them into his cart. The app keeps a running total of his selections, automatically applies discounts and allows him to speed through a special checkout line.

“I just hate the electronics, but the money savings I like,” Hansen said.

The shopping app Hansen used is made by Fetch Rewards Inc., one of at least three young Madison, Wis., companies focused on bringing digital technologies to the grocery industry. Largely unchanged for decades, grocers are starting to see an onslaught of young companies transforming an industry with innovations.

“More and more transactions are moving online, and you can see the beginnings of store owners starting to realize they should change their strategy,” said Jeremy Neren, founder and head of business development at GrocerKey Inc., a Madison startup that partners with stores to help them sell online and deliver locally.

“The way they’ve done business for 100 years doesn’t apply anymore.”

New “food-tech” companies, many headed by young, tech-savvy entrepreneurs like Neren, are driving the transformation. Such companies raised more than $1 billion from venture capitalists in 2014, according to CB Insights. The companies have technologies for delivering groceries, ordering food, tracking inventory and doing other tasks. Others have created replacement products such as eggs, meat and leather.

Instacart Inc., a San Francisco grocery-delivery concern that Forbes Magazine earlier this year called “America’s most promising startup,” in January raised $220 million in venture capital, and the company is now valued at $2 billion.

Fetch expects to have its shopping app available in new stores later this summer. The company has nearly completed a $4 million fundraising round, said Wes Schroll, founder and chief executive officer. Fetch previously raised $4.3 million, about half of it late last year, Schroll said.

“Everyone is competing with Amazon and looking over their shoulder at Target and Wal-Mart,” said John Philosophos, a partner at Great Oaks Venture Capital LLC, which has invested in Fetch. “The Fetch app gives small players a tool for consumer loyalty and pricing.”

Shoppers pay nothing to use the app, and like it most for the savings and the way it makes shopping fun, Schroll said. Retailers pay a one-time setup fee and a monthly subscription fee, but Fetch makes most of its revenue from the product manufacturers, he said.

The app gives manufacturers the ability to deliver coupons on the spot — so when a customer scans a bag of burger buns, Johnsonville can immediately send a coupon for burgers. Product manufacturers also get data that shows them how much individual shoppers will spend on particular items, and allow them to target specific demographics.

The Piggly Wiggly has been able to differentiate itself from the competition since it started using Fetch in July, said Curt Schmidt, store manager. For customers who don’t own smart devices, the store initially bought three iPads to lend and has added three more, Schmidt said.

In many cases, the Madison food-tech companies are starting with family-run grocery stores that historically made money by acquiring more stores, said Andrew Hoeft, founder and chief executive officer of Pinpoint Software Inc. in Madison.

“Now there’s a younger generation that’s helping them realize they can make more money with the business they already have by improving their processes,” Hoeft said.

For instance, the 93 stores around the country that use Pinpoint’s Data Check Pro software save an average of $40,000 annually by tracking their expired products more efficiently and in less time, he said.

Economic-development professionals and others often try to predict which technologies will develop in their communities, said Joe Kirgues, co-founder of gener8tor, which trains startups in Madison and Milwaukee, and counts Pinpoint Software among its participants.

“But one of the exciting things about there being a grocery cluster in Madison is that no one predicted it,” Kirgues said. “And who knows what new cluster will emerge tomorrow.”