Farmstead taps AI to bring grocery prices down

Discussion
Photo: Farmstead
Feb 06, 2019
Tom Ryan

Farmstead launched in 2016 in the San Francisco Bay area touting its ability to use artificial intelligence to efficiently source and deliver food to homes at prices on par with local supermarkets. Now, a new delivery option from the company promises to bring prices below the average cost for the Bay area.

On the sourcing side, Farmstead contends that pen and paper systems are still largely used in the industry to order products and account for perishability, a practice that results in 35 to 40 percent of all perishable foods being discarded and depressed grocers’ margins.

Farmstead says its self-learning predictive models combine historical sales data and current trend data with consumer recommendations and external factors, such as holidays and product sell-by dates, to predict customers’ future orders. The system uses machine learning to process these data points and help Farmstead source only what it will sell, avoiding overstocks. Farmstead said its perishable food waste is under 10 percent.

Farmstead’s selections are also limited to basic staples to reduce food waste.

On the delivery side, the AI-driven models optimize routes, incorporating real-time traffic information to save time and conserve fuel. Farmstead also offers weekly discounts and free delivery to incentivize households on the same delivery route to join the program, further decreasing last-mile costs.

The newly-launched program, Refill & Save, seeks further savings through recurring orders. Farmstead automatically queues up customers’ recurring weekly orders — customers can then add or delete any items for the week or cancel a weekly order entirely up to an hour before their delivery window.

“Most households buy many of the same things every time they grocery shop,” said Pradeep Elankumaran, founder and CEO of Farmstead, in a statement. “In Farmstead’s case that helps us predict demand, reducing our costs and improving efficiency. In light of that, we were able to reduce our prices on certain staples while still making the business profitable.”

Farmstead offers free weekly delivery in three-hour windows for orders over $30, and free, same-day delivery for order over $35. Seventy percent of its customers receive free delivery. The company continues to focus on the Bay area but plans to expand to additional markets this year.

DISCUSSION QUESTIONS: What do you think of the potential for AI to optimize the sourcing of perishable food and grocery delivery routes? How would you rate Farmstead’s expansion potential? What questions or concerns would you have about its business model?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"AI is just going to get better and better and to apply it to an industry where waste represents 35 percent to 40 percent of product is a no-brainer."
"...it sounds like it’s a winner for sourcing of perishable food and grocery delivery routes as long as the information is accurate."
"Honestly who’s losing here? This just seems like a real great, practical use for AI, that’s having an actual benefit for Farmstead and its customers."

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8 Comments on "Farmstead taps AI to bring grocery prices down"


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Art Suriano
BrainTrust
Artificial Intelligence is popping up everywhere, and no doubt has tremendous potential. The problem is we are still years away from perfection and for all the good it does in some cases, it causes issues that typically lose business. Regarding Farmstead, it sounds like it’s a winner for sourcing of perishable food and grocery delivery routes as long as the information is accurate. Every time I call a company and I’m forced to speak with a computer which is supposed to save me time, it often turns out into a nightmare because the AI cannot understand what I’m asking, and that leads me to scream the word “representative” several times until they connect me with a human being. The bean counters are thrilled because of the money they’re saving not having live operators answering the phones, but do they measure the frustration of the customer and how often they hang up? The point is, AI has a future, and no doubt will be a successful tool for many needs. However, we need to make sure… Read more »
Dave Bruno
BrainTrust

Leveraging AI to optimize routes is not the headline here. In my opinion, Farmstead’s use of AI to “…offer weekly discounts and free delivery to incentivize households on the same delivery route to join the program…” is the headline. That is where the real opportunity lives. The more they can imbue localized intelligence into the offers to households already on their delivery routes, the higher their return on their investments in AI. My head is spinning with thoughts of the potential, should they execute effectively.

Gene Detroyer
BrainTrust

This is outstanding. AI is just going to get better and better and to apply it to an industry where waste represents 35 percent to 40 percent of product is a no-brainer. Their target is 10 percent. My bet is it will even be better than that in the next five to 10 years.

Steve Montgomery
BrainTrust

I agree with Dave that getting customers to order weekly in exchange for a discount is the real winner. When conducting third-party distributor RFP for chains there is no question the impact of other stores along those routes has an impact on the cost basis for the new chain and likely the existing chains the next time their contract comes up.

Other factors such as drop size also play a strong part in determining the delivered cost. What Farmstead is doing is working to incorporate all these factors. The real difference is they are doing it for the end consumer rather than a retailer.

Ricardo Belmar
BrainTrust

Anywhere there is waste in products and service delivery, it is ripe for disruption and optimization by AI. There is tremendous potential here as we look to the future and AI only gets better and better. I agree with Dave, too, that a big win here is in making the connection between discounts and incentivizing weekly participation by consumers. If food and grocery delivery could be optimized to a point of profitability and consumers incentivized to try it and stay with it, we could see waste levels reduced significantly with no perceived downside by those consumers. That’s a win for everyone.

Craig Sundstrom
Guest

Should everyone welcome new technology? Certainly. Is any technology ever going to completely eliminate waste in perishables? No … not as long as people are allowed to be fickle (on the demand side) and Mother Nature is allowed to influence the supply side. 10% (vs 40%) sounds impressive, but people would be wise to see how both of those numbers were calculated before commenting further.

Cate Trotter
BrainTrust

Honestly who’s losing here? This just seems like a real great, practical use for AI, that’s having an actual benefit for Farmstead and its customers. Having your order automatically queued up for the following week helps to reduce your to-do list, while also giving you the freedom to cancel or change. And if you are often buying the same things why should you have to keep adding them week on in? As others have pointed out, the incentives to get people to sign-up to the same delivery route is a great benefit in reducing costs and increasing sustainability.

Again there’s this ease to it — if you tell people you’re going to be nearby at a certain time it almost makes it harder for them to ask for something different (unless it’s an incredibly inconvenient time of course). The act of being there inspires action, rather than choosing from a myriad of times and dates.

Shep Hyken
BrainTrust

This is the perfect use for AI. It will help with logistics, distribution, inventory control, and more. Mitigating or eliminating waste will help bring costs down, allowing for the some of the savings to be passed on to the consumer. Everybody wins!

wpDiscuz
Braintrust
"AI is just going to get better and better and to apply it to an industry where waste represents 35 percent to 40 percent of product is a no-brainer."
"...it sounds like it’s a winner for sourcing of perishable food and grocery delivery routes as long as the information is accurate."
"Honestly who’s losing here? This just seems like a real great, practical use for AI, that’s having an actual benefit for Farmstead and its customers."

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