Grocery Tech Budgets Shrinking: Industry Reacts

After a couple of extremely busy and expensive years spent updating their technical prowess to meet changing market conditions, grocers are expected to lower their IT spend in 2023. According to Grocery Doppio’s recently released “State of Digital Grocery 2022 Performance Scorecard,” grocers will decrease their 2023 technology budget (Opex) by .7% on average compared to 2022.

The decrease in grocery IT spend is not shocking considering the major tech outlay many grocers made over the past couple years to upgrade operations in the COVID era. In addition, economic concerns have likely played a part in many grocers’ decision to temporarily trim their tech investment plans.

While overall tech investment is expected to slightly decrease this year, investment in digital is still a vital piece of grocers’ technology roadmap. According to the Grocery Doppio report, 23% of grocers actually plan to increase their spending on digital initiatives this year, despite overall budgets decreasing. For those that plan to increase their digital tech spend, investments will be significant, averaging more than a 10% increase.

Where will that increase in digital spending be allocated? Fulfillment efficiency tops the list, with 77% of the more than 2,300 grocers polled naming it as a top priority for 2023. Rounding out the top three digital investment areas over the next 12 months are digital basket size nurturing (named by 67% of those surveyed) and improving system-wide inventory accuracy (a top priority for 55% of grocers).

We asked some of the leading minds in the grocery tech industry why they think IT spending is predicted to decrease this year. And, why despite trimming budgets, digital investment continues to be a top priority? Below are their responses.

“Investment goes in cycles, so I am not too concerned about that. The physical store is not going anywhere in certain sectors, especially food, beverage, and convenience. But the physical store needs to be reinvented so it can not only drive operational efficiencies, but also start delivering on a much bigger revenue potential. Retail media is an example where investment is growing because there is an opportunity for retailers to play offense and grow sales. In economic times like we are in; you can squeeze efficiency only so far. It really comes down to finding new margin and new revenue. Retail media is a very high margin business and is a lucrative place for investment.”
— Arsen Avakian, CEO and Founder, Cooler Screens

“We start off with the physical store being the core asset for grocery. Every iteration on top of that is going to be about how do I take that shopping experience further. The digital channels are the key next step because we can take everything we have in the store already and enable a better experience with digital. How do we enable the consumer to identify the products they want before they get into the store? How do we make sure they go to the right place that has the products they want? How do we make the advertising experience better to reach consumers more effectively? I think digital is about the next layer within the store experience, and that is enabling a great degree of innovation within this space.”
— Ethan Chernofsky, SVP of Marketing, Placer.ai

“In the current economic climate, any investment in technology solutions will be under extreme scrutiny and must deliver in spades to stand a chance of being commissioned. One of the major questions our retail clients are asking is ‘how do we do more with less?’ Through the introduction of technology to ease workloads, store associates can dedicate their limited time to more valuable and fulfilling activities like clienteling and better customer service. Countless companies are struggling to both bolster and maintain their workforce, so moves that simplify processes and meet staff needs are critical.”
—Jessica Grisolia, Senior Industry Solution Manager at Scandit

“There was a tremendous spend during COVID, where grocers like all other retailers, overspent. I would look at it more of an adjustment as opposed to a down trend. I see increases in digital spending in a big way. Grocers are really trying to get their online business to be complimentary to their in-store business. There is a big surge of spending where grocers are focused on online, trying to make reflective of the service and quality in the store.”
— Tim Kane, Retail Industry Principal, Zebra Technologies

“Over the past six months with inflation and an impending recession, consumer behavior has changed. They're making fewer trips and reducing basket size — and more of that is expected in 2023, which is probably why there is a spending hold. The reason digital important is because what happened during COVID — increased buy online, pickup in store and curbside pickup. I think that's where the investment needs to happen. Grocers have always lagged implementing digital and they have realized that digital investment is needed — getting up to speed with other industries like apparel or fashion.”
— Prithvik Kankappa, COO, Impact Analytics

“Grocers of all sizes recognize they need a digital strategy and must continue to spend on digital. It is not surprising that money is being shifted in that direction. While money is shifting, one of important things for grocers of all sizes is to be reassured that they are allocating money into the right digital initiatives. It is important to have industry benchmarks to understand what others are doing and understand where spend is going — that helps justify additional spend. It helps e-com managers, strategists within the company, and higher-level leadership understand how important it is to make these investments. There has been a void in the market for this kind of information.”
— Charles Kaplan, Chief Revenue Officer, Wynshop

“We’ve seen technology purchases of hardware slow down due to supply chain and semiconductor disruptions that persist from the pandemic. Yet, retailers are prioritizing how they can better connect and analyze data to boost store performance. This requires focused investments in digital tools and connectivity solutions. By tapping into both internal and external data, grocers aim to streamline operational processes and improve customer experience to boost their margins.”
— Kerry Langley, Vice President of sales, SATO America

“We have seen slight reductions in some areas but more of a reallocation and focus on budgets as grocers are increasingly feeling the tightening of spending from consumers. It is the reallocation of budgets that is particularly interesting in the current economic climate as the challenges for grocers are evolving with tackling shrink being viewed as a top priority in the industry. Grocers are focused on sweating existing technology assets as much as possible and on making shorter-term returns rather than longer-term bets. And it is incredibly important to recognize that shrink is not just about theft –– it is also about waste, errors, and accidents. Computer vision AI is increasingly being used to tackle all of these to address loss prevention, as well as product availability, waste reduction, and process automation.”
— Alex Siskos, SVP of Strategy for Everseen

“Cost of living increases have consumers focusing their spending on lower-margin necessities; while lower gross margins put pressure on grocers to reduce spending, including on technology. At the same time, grocery shopping habits are changing as more people utilize digital services, and grocers, like all retailers, must now think, “digital first” for everything from online shopping, ordering, and integration with fulfillment services, to online advertising and search engine optimizations. The challenge for grocers will be to develop the technical prowess to meet these changing shopper expectations as cost-efficiently as possible.”
— Mike Tippets, Vice President, Enterprise Marketing, Hughes

_{Want to join in the conversation? We would love to hear from you. Send your comments to Grocery Doppio’s chief editor Tim Denman at tim@grocerydoppio.com.}

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