The grocery store is one of those modern miracles we often take for granted — aisles stocked with food from all over the country and world, constantly being updated so food stays fresh. And although all of us have almost certainly been inside of one, most of us don’t really know how all that food gets into the store or where it goes afterwards.
One of the sad truths about grocery stores is that a good chunk of that food is wasted. If perishables aren’t sold in time they have to be donated or thrown away. This wasted inventory is a major blow to a grocery store’s bottom line, but also not a very sustainable practice. It’s estimated that the food retail industry wastes 43 billion pounds of food every year, and that about 12 percent of fruits and vegetables that make their way to stores are never sold.
But a lot of grocery stores are unfazed by food waste.
When Seattle entrepreneur Stefan Kalb was running his food company Molly’s, he was greatly dismayed by the amount of food he was wasting. At the time Molly’s products were being sold in over 400 retail locations, but Kalb noticed that about 28 percent of his products were heading for the trash. When he asked around the industry to see how he could solve this problem, people actually seemed impressed.
“Store after store, people said, ‘Oh, 28 percent, that’s pretty good.’ I was like, ‘You’ve got to be kidding me that’s pretty good,’” Kalb said.
So to tackle the problem, Kalb teamed up with Microsoft engineer Bede Jordan and co-founded Shelf Engine.
Shelf Engine uses machine learning algorithms and multiple data sources to accurately predict demand for highly perishable foods. This means that grocery stores don’t have to worry about being understocked, which results in empty shelves and missed sales opportunities, or have to worry about being overstocked, which results in money and food wasted.
Shelf Engine is so confident in their technology, the company actually handles the entire ordering process for grocery stores — from vendor management to shelf optimization. Shelf Engine will even offer to buy back remaining unsold items, protecting grocery stores from absorbing that loss. This helps maximize grocery stores’ profits by improving their bottom line. And one way to get grocery stores to care about minimizing food waste is by maximizing their profits.
“The reality of achieving this mission [of reducing food waste] is that we have to make the right people care. And the right people are these large grocers who care about their profits,” Kalb told Built In. “If we can take their 18 to 20 percent gross profits and increase that to 30 percent, they’re going to care and they’re going to act. So we’re able to achieve our mission by aligning profit with reducing food waste.”
On Thursday, Shelf Engine announced the closing of its $41 million Series B funding round. This round was led by General Catalyst, and brings the company’s total funding raised to $58 million.
This new funding follows a year of huge growth for the company.
Many of us remember how hectic grocery stores were during the early stages of the COVID-19 pandemic. Restaurants were closed so people were forced to cook at home, and shoppers were stocking up for what seemed like an inevitable armageddon. Certain high-ticket items like beans, toilet paper, pasta and canned foods were nowhere to be seen.
While just thinking about these painful times may give you the chills, things were even worse for the people who worked at those grocery stores. Many grocery store employees were leaving because of the stress or because they didn’t feel safe enough at work, and at the same time, these grocery stores didn’t know how to deal with the volatile surge in demand.
Remember how everyone was buying beans in the early pandemic days? Well, what happens when customers now have 20 cans of beans in their homes? They stop buying them. So grocery stores went from being cleared out of certain items, to being overstocked.
“Essentially, grocery stores have forecasts for items that are very static most of the time. That’s true even for the very large groceries,” Kalb said. “Let’s say a store was selling 100 loaves of bread a day. When demand spiked, it spiked to 600 loaves a day. Grocery stores weren’t ready for that and they weren’t able to compensate.”
He continued: “Now, we could see that pattern starting to pick up elsewhere and everywhere. So our AI could learn from that, and tell stores to order 600 loaves tomorrow. Then it was able to adjust back when the demand started dropping. Most grocery stores didn’t have the means to do that quickly on their own.”
Shelf Engine was able to help grocery stores weather this chaos, and, as a result, demand for its product skyrocketed. Last year, the company saw revenue increase by a massive 15x. Its technology is now live in over 2,000 stores.
This new funding will help the company grow even more. Shelf Engine aims to add thousands of stores over the next 18 months.
In order to accomplish such a feat, Shelf Engine plans to aggressively expand its team. The company, which employs about 145 people now, is looking to reach a headcount of between 350 and 400 by the end of the year. A lot of these new jobs will be for roles in product, data science and engineering. This projected growth is so big that the company is currently in the process of finding a new Seattle headquarters to return to, since their old office only fits about 70 to 80 people.
As Shelf Engine expands its team and grows to more stores, it will help thousands of new grocery stores optimize their ordering, and help reduce food waste in the process.