New funding: Shelf Engine raised $41 million to support rapid growth of its tech platform used by grocers such as Kroger and Walmart to manage food orders for deli, bakery, cut produce, meat, and other categories. The idea is to help streamline the ordering process and get the right amount of product on the shelf at the right time.
How it works: Shelf Engine uses forecasting tools and order automation systems that analyze historical orders, sales data, and real-world variables. It is set up as a scan-based trade, or SBT. Shelf manages the orders, pays the vendor, and only charges the retailer for what sells. Shelf makes money by marking up the product from the vendor to the retailer.
“If you walk into the produce department of a Kroger, that produce is technically ours, until a consumer buys it,” explained Stefan Kalb, co-founder and CEO.
Traction: The company is working with 2,000 grocery stores nationwide. Revenue increased 15X last year. “We’re making our customers rich,” Kalb said.
Competition: Kalb said there aren’t any direct competitors. Shelf Engine focuses on convincing grocers to hand off their ordering instead of using spreadsheets and guessing numbers. “You’d be blown away by the quantity of food that is ordered that way,” Kalb said.
Pandemic impact: Kalb said the disruption of customer behavior and supply chains over the past year put a spotlight on how ordering problems arise when patterns are disrupted. That proves the value of Shelf Engine, he said.
Grocery disruption: There is plenty of attention on consumer-facing grocery trends and companies, such as cashierless checkout and delivery companies such as Instacart, which is also growing rapidly. But Kalb said the major shift that will transform the industry is on the back-end — for example, if grocers can figure out how to save money on getting products on shelves, they can lower prices.
Friend or foe? Amazon continues to make big moves in grocery, expanding various concepts such as the Amazon Go convenience stores and its new Amazon Fresh grocery store chain that has been growing during the pandemic.
Shelf Engine has a unique relationship with Amazon — the company is a Shelf Engine customer, through its Whole Foods subsidiary. But Amazon is also quickly expanding its own grocery concepts and building its own technology.
“Amazon is looking at it and saying, wow, there’s a ton of waste and inefficiencies in the system, and if we solve these things we can literally sell products for 20% less,” Kalb noted.
Future of grocery stores: Speaking on an episode of 2025: Tomorrow, Today, a new podcast from Mekhato Studios, Kalb said grocery stores will look a lot different in the coming years, carrying even more perishable items than they do today and possibly creating more competition for traditional restaurants. He wonders if grocers in the next 10 years start doing “everything.”
“The deli and the hot bar at the grocery store is very profitable,” Kalb said on the podcast. “It’s continuing to grow and grocers are investing a lot strategically to grow that part of the store. I wouldn’t be surprised if one day you go into a Whole Foods and half of the Whole Foods is actually a kind of a dining experience rather than a traditional grocery store.”
Founding story: Kalb got the idea for the company through another startup he co-founded: Molly’s, which provides healthy food to hospitals, grocery stores, coffee shops, gyms and offices. Kalb noticed the difficulty of building efficient fresh food orders and decided to build software that helped Molly’s purchase the right amount of bulk food to fulfill customer requests.
Kalb, who was born in France and graduated from Western Washington University with degrees in mathematics and economics, co-founded Shelf Engine in 2016 with Bede Jordan, a Microsoft veteran who was most recently the principal software engineering lead for the company’s HoloLens team.
Investors: General Catalyst led the Series B round, which included participation from GGV Capital, Foundational Capital, 1984 Ventures, Correlation Ventures, Founders’ Co-op, Soma Capital, Firebolt Ventures, and Initialized Capital. Shelf Engine raised a $12 million round in July. Total funding to date is $58 million.
“The grocery industry is on the precipice of monumental change, with few companies driving the same level of innovation as Shelf Engine,” Hans Tung, managing partner, GGV Capital and Shelf Engine board member, said in a statement. “GGV looks to support companies with the potential to create significant impact on the efficiency and evolution of existing industries. Shelf Engine has the ability to overhaul the entire supply chain, providing direct, tangible benefits for both the grocery industry and the environment.”
What’s next: Shelf Engine has 145 employees and expects its headcount to reach 350-to-400. Kalb said he plans to keep growing the company in Seattle.
“I’m very bullish on Seattle,” Kalb said. “I believe in the Seattle spirit; the ingenuity and the creativity in the area; the work ethic in this area. Microsoft, Boeing, Starbucks, Amazon — they were founded here for a reason. We expect to be one of those, among many others.”