How AI Could Level the Playing Field for Independent Grocers

0:00This episode was brought to you by KWI. And that's what's been so special with independence. And I felt that AI can create the illusion of intimacy. And national chains will take advantage of that. They're going to create an experience that is faux intimate with customers.

0:23Welcome back to Retail Remix. I'm Kate Robertson, Editor-in-Chief of Retail Touchpoints. Independent and regional grocers face a tough fight. Big box retailers bring massive budgets, deep data, and scale that's hard to match. So where does that leave the neighborhood grocer? My guest today has something built just for them. Tal Zlatnitsky is the founder and CEO of Breeze AI, a company creating technology designed specifically for regional and independent grocers. We talk about why he believes whoever owns the AI a shopper talks to owns the customer relationship and why that matters so much for grocery's future.

1:00We also dig into Breeze AI 2.0 with new features like wine and cocktail pairings, multilingual support, and pantry modes. Let's get into it.

1:12Tal, thanks so much for joining us on Retail Remix. Tell me more about yourself. What's your background and what led you to found Breeze AI? So Kate, first, thanks so much for having me on. My background is I was born into the wholesale distribution business. My family owned a distribution company. And so I had the opportunity to learn the business from the ground up to see the interaction between retailers and their suppliers. That company ended up being sold to Hudson News, which was both a wholesaler and a retailer. From the experience of working there and having the opportunity to see the business, I ended up building a technology company with my brother.

1:46And that company, iControl Data, ended up operating with over 20 ,000 retail doors, intermediating between retailers and distributors. And many of the people that I'm servicing today with Breeze AI were people that were clients of mine with eye control data. Goldman Sachs backed eye control data. We operated the company until 2023. It was sold in 2023. It still exists under a different brand. And, you know, I was beginning to think about what would be next for me. What would be the next area where I thought there would be an opportunity for me to have an impact and be innovative? And it was pretty clear to me, it was early 2023 that AI was going to be a big deal.

2:16And it was also fairly evident that the haves, the national chains, the large third-party fulfillment platforms, they will take advantage of what AI brings to the table and that there will be potentially parties that would need some support in order to compete. And I was fortunate enough to have built a good relationship over the years with many people that I'd worked with, among them, David Smith, who was for many, many years, the president and CEO of Associated Wholesale Grocers, Dan Funk, who's a current CEO. And I turned to David early and I said, David, I think I think I want to get into the AI space, and I think I specifically want to get into the AI space to support independent grocers.

2:50David was an enthusiastic supporter. Dan and AWG got behind us early, and the rest, a little bit, so to speak, is history. And why regional and independent grocers rather than national chains? What did you see in that segment of the market that made you want to support it? So first of all, I would say, you know, from my years of working in this space, I got to know many of the retailers who were operating those businesses, and they were wonderful people. with a noble mission, which is to serve communities oftentimes that don't have access to everything that's available in the eastern seaboard or the western seaboard.

3:25And so it's a very noble purpose. And they're fantastic operators. They know their customers. They know their marketplaces. I also felt that AI could create an opportunity for national retailers and fulfillment providers to narrow the gap on personalization. because ultimately what has been the primary differentiator for a small independent is they know their customers. I was on vacation last week in the lower upper peninsula of Michigan and met a good friend of my significant other who unprompted, not knowing what I do, raved about her local IGA in the small community in Michigan and talking about the fact that, you know, this store has everything I need and they're always open and the owner's sons are walking around the store and they know my name.

4:08And that's what's been so special with independence. And I felt that AI can create the illusion of intimacy and national chains will take advantage of that. They're going to create an experience that is faux intimate with customers. And it felt like if independence sat that out or waited it out, they would find that their one competitive advantage was narrowed and the areas that are more difficult for them to compete on potentially widen, primarily because AI opens the door with retail media to the kind of contextual advertising that is catnip for advertisers. And that would create even more opportunities for the national chains and the marketplaces who are already generating the overwhelming majority of the retail media revenues to generate even more of it and further widen the gap on pricing.

4:55So the bottom line was it felt for me as if there was not much of a choice. It was clear to me. And maybe on some level, it's because I consider myself an underdog. I came to this country as an undocumented immigrant as a child. I've always kind of advocated for those that frankly need someone to advocate for them. And it felt to me like my time would be much better spent trying to help the community of people who I felt had a noble cause, but who were vulnerable and would, in my opinion, also take the most advantage of the opportunity if they understood how to do it and they had the ability to do it in a way that was cost effective for them.

5:27That's so interesting. Do the independents have an edge online? Like even sort of pre-AI, were they able to compete in that e-commerce world against big box? You know, the data shows that they have not made much of an effort there. There has been some effort, and it's largely been through partnering with marketplaces, facilitators. There has not been a concerted effort for the most part. There are obviously some independents have done a better job than others, but by and large, independents are lagging when it comes to online sales. And in the past, maybe prior to 2020, prior to COVID, that seemed like a strategic decision.

6:05We're going to focus on the customer that's coming into the store. That'll be where we do it. And, you know, to the extent that there is any online business, it's a rounding error. That can no longer be accepted as go forward strategy. We're seeing the data. Really, the only place in grocery where we're seeing significant growth is online. And younger consumers in particular, and my children are in their early 30s and late 20s. They have young families and I'm seeing how they're shopping and they're mostly shopping online. And even the extent they go to the store, it's with an order they call in in advance for pickup.

6:35So it seemed pretty obvious to me, and I think it's pretty obvious to anyone looking at the data, that looking at online as an afterthought is a risk that independents probably cannot afford to take. That said, independents do have advantages, even when it comes to online, that they could capitalize on if they had the means and the ability to do it. So some of what we're about is giving them the toolkit to compete in this AI-first world. It's an AI-native world that we're turning to. It's no longer just, oh, there's AI and the rest is the same. No, everything is going to change. We're moving to an AI native world and the opportunities that presents are enormous.

7:11It also obviously requires great computing. I mean, that's one of the challenges that anyone that's looking at AI, you don't need to go far, you know, look at your business pages and you're seeing that where the money is going with AI is going to NVIDIA and the companies that are running the centers that are on which this technology is run. It's data intensive. It's resource intensive, which meant that for independents to be able to compete there, they'd have to come together. And independents have done that very, very well. They've built cooperatives, both for purchasing power, but also for technology.

7:40And it seemed to me like that would be a great place for us to be. And frankly, in the context of AI, the only way that independents could stay in the game. You've said that whoever owns the AI a shopper is using owns the customer relationship. I hear this a lot as well in my reporting. Can you unpack what that means for you and how you're helping grocers own that relationship? Yeah, we've been talking a lot about the question of who's AI as opposed to just weather AI. I think the weather AI question has been settled. AI has become table stakes and everyone understands, everyone that's paying attention to the data, particularly the fact that consumer interest in AI, consumer deployment of AI in all sales, but in particular in grocery for some reason, is pointing in one direction, one direction only, which is that consumers are going to deploy AI.

8:29So then it becomes who's AI. And the reason that I think ultimately becomes so important is that the battle for grocery is largely occurring or increasingly occurring before the shopper ever enters the store. It's no longer that you have the greatest display and it's fresh and it looks great in the store or even that your circular is promoting the right things. For the most part, for an increasing number of consumers, it's happening before they even consider which store or entering the store. So if it's who's AI, then you've got to look at what qualifies something as being owned by you. And in that respect, I think there is a need to pay very, very close attention to what the real marks of ownership are, right?

9:07Because for somebody to tell you, you know, it's your brand, it's your name, it's, you know, white label, those are words. They're not structural. They're contractual. And contracts can be changed. So the real measures of whether you own something, I think, boil down to two or three key things. One is authentication. Where is the shopper being authenticated? Where is this information being stored? Okay, that's question number one. Question number two, who's getting smarter from the conversation? Whose system is learning? Where is this information compiling? How is this information compiling? How is this system that's capturing data from your customers rolling up to a system that's capturing data from other customers?

9:46The third to me is actually the simplest, Salesians. Is the party that's providing me these services competing with me or powering my fiercest competitors? Those are the three questions that I think retailers need to be asking themselves. If you can answer those questions comfortably, then it's probably safe to say, I'm actually, I own my AI. And if you cannot, then you've got to ask yourself who does.

10:11You may not have heard of KWI, and there's a reason for that. For over 40 years, KWI's POS has helped brands and specialty retailers grow from their earliest days into names you know, like Pandora, Peter Miller, and Alice and Olivia. But now the best kept secret in retail is getting out. Find out what the secret is at kwi.com slash RTP.

10:37So tell me what is unique about Breeze AI and how you are serving your clients? So two things. One, our equity structure and our governance structure, I think are unique. Associate Wholesale Grocer, which I think most of your audience probably knows, is the largest independent grocery cooperative and independent retailer-owned food wholesaler in North America. They are our largest investor. Their CFO sits on our board. The former president and CEO, David Smith, who is one of our largest shareholders, is our chairman. And when David and I started talking about Breeze AI back in 2023, he made it very clear to me that he would not get involved in anything that did not benefit independence and protect independence.

11:18And I told him he had me at hello because I felt very strongly that one of the things we needed to do was create a governance structure that protected independence because there have been other operators in the technology space that have come into the channel touting how they'll benefit the channel. And then they sell to someone that may not necessarily have the channel's best interest at heart. And I'm an entrepreneur, but there are ways to do this. It doesn't have to be a situation where I build a business and I turn around and the people that help me build it don't benefit from it. So from the go, we believe that our governance needed to include independents in the equity table and that they needed to be in the boardroom.

11:53And the reason for that is we're going to make decisions in the boardroom that impact what our platform does and who it does it for. And they're going to be right there. That's point number one. I think point number two is that we've built our technology to be accepting of the fact that the independent channel is a disaggregated channel when it comes to technology. So we didn't build it and require everyone to just plug into us and we'll sit back and you figure it out. The channel has numerous legacy providers of technology. By the way, many of them are wonderful companies with great leaders. But I can tell you that legacy technology is not that well-suited to the moment.

12:25You know, technology that was built in the pre-AI era is transactional technology. And we have become, we are at a moment where it's about the data aspect of it. In fact, just earlier this week, the CEO of Microsoft, Satya Nadella, published a really interesting thought piece. He used a phrase that I think was quite interesting. He said, in the cloud era, enterprises accumulated data. In the AI era, they accumulate learning. And he called it the reverse information paradox. And I think that's exactly right. Okay. So the learning accrues inside the channel because we are integrated with the channel's technology.

13:01And we are not asking anybody to rip anything out. We'll work with whoever's there and we'll work with them collaboratively. So I think those are the main things. And at the end of the day, we do not have a marketplace. We do not intend to open a marketplace. and we will not supply the national chains that compete with our customers. I think that matters too. Let's talk more about the features in Breeze AI. You've introduced features like wine and cocktail pairings, multilingual support. Were you noticing a change in how consumers were shopping for grocery? Were there sort of changing behaviors that you noticed that made you develop those features?

13:35Where did that come from? Yeah, I mean, we're definitely seeing in the questions that are being asked of our chat tool, some indications for an evolution in how consumers are shopping. And I think what we're seeing is we're seeing a shift from consumer shopping for products to consumers shopping for occasions. And I mean, I don't know about you, but I don't wake up in the morning thinking, you know what I really want today? I want to buy a jar of marinara. You know, I might think I want to make my family my pasta dish, you know, with meatballs, or I've got guests coming tonight. and I know that she's got a gluten sensitivity and so I'm thinking about what to make for that.

14:12Or my daughter, she's practicing to run a marathon and I really wanna be thoughtful about what I put on the table at dinner. That's what people are thinking. And traditionally, and the traditional way of grocery shopping has not lent itself to that. It's largely been a list, a shopping list. We're moving away from that. I think the shopping list is gonna disappear. I think it's gonna end up being more of a build list. Help me build my experience list. Help me build the week. I'll tell you what my week's going to consist of, and you helped me assemble the right list for that week. I think that's where we're going.

14:41And AI is uniquely positioned to do that exceptionally well. It's also true, though, and I think that's one of the reasons that our customers that are using us are feeling confident, that not every store carries every good. In fact, a lot of independent retailers carry a smaller selection, a more curated selection, but a smaller selection of SKUs. And what we do is when the consumer tells us what they want, we run their desired list. whatever the occasion is, through an analysis both of an unlimited supply of meals. Breeze AI is not scraping the internet for meals. We've taught our tool how to be a chef and we can generate a meal in any combination of anything that you could think of.

15:20And I often, not jokingly, tell people, go to the tool and try to stump it. Open your refrigerator, type in nine things, and watch what the tool does for you. But interestingly, the tool will also look to see what the store carries, right? A lot of the internet recipes have a selection of random items. you might need to go to three different places that item isn't even available in your region or in this country we're very careful that we're procuring a basket that our customer can buy at the store they're shopping and we think that's really important it's important for convenience it's obviously important to the retailer we try to consolidate baskets so I think ultimately we're going to see a very very different consumer expectation consumer experience we certainly are anticipating that and we're building the tool so that it is able to respond to the occasion versus the marinara jar ask Yeah, as you were talking, it got me thinking too about affordability.

16:08I'm sure your clients are seeing the pressures on the consumer up close. I'm just curious if there are features built into the tool around affordability, if you're seeing a lot more questions around budgets in the tool. Yeah, so there are extensive capabilities in the tool now and there are more coming. Interestingly, a question I was asked in another interview was around dynamic pricing and whether any retailers had talked to us about wanting to leverage AI for dynamic pricing. And my answer there, I think is relevant here, is that we didn't build a solution to gouge anyone, nor has a single retailer to this point in our channel that I've spoken to asked me how they could leverage the tool to potentially dynamically price their goods.

16:49But we do have dynamic discounting because we are proactively, at the moment the consumer tells us the occasion that they're shopping for, looking for the right offers for them. We're looking for coupons dynamically. So if you've told me that you're looking for a certain dish, we will scour all our potential coupons from whatever source we have them through and we will find you a coupon. And if there's a specific thing you're looking for and we have a marketing offer for it, we will bring that to your attention. So we will proactively find the discounts. We also allow the consumer, in fact, encourage the consumer to set a budget.

17:23So you can set the budget in the tool and then you can say, look, build me my normal basket. Also, I've got four dinners. I do have guests on Friday and you know my budget. And the tool will build you a complete plan for the week based on that. And there are more things coming. We're really excited about some of the new capabilities we'll be releasing in the fall and in the winter. That will take everything that we are doing now and add a whole new dimension of efficiency and pleasure for the consumer. But yeah, I think that, you know, I think that I think there's a lot more to come. Let's put it that way.

17:53It's very exciting stuff. Nice. AI is reshaping how people build loyalty and make everyday decisions. As someone who's watching that shift up close, what excites you most about where this is headed? Yeah, I mean, you know, I think it's interesting that there's been a lot published about that of late, including a very interesting report you guys put out last week that I read that actually I printed. It's right here on my desk. And I think it's spot on. I mean, I think, you know, the old ways are getting obliterated by the new ways and we're going to see a complete new design to loyalty. I mean, loyalty is going to need to be personalized.

18:25It's not going to be enough anymore to just have a program and you do the same thing. You know, an interesting takeaway from our initial few months in the market was that the people that started deploying our tool, we found had slightly lower basket sizes prior to using the tool than their peer group. Other loyalty customers were buying more than people that started picking up the tool. And then their basket sizes rose and they're about 20 % higher than the peer group that's not using the tool. And it took us a little time to figure out why, but our conclusions ultimately are they were buying in multiple places.

18:59That's what it was. These are customers that are trying to stretch dollars and loyalty to them is a means to an end. It's all it is. And so knowing that those customers are there and that they are splitting their basket two or three ways. How do we get those customers to choose to buy more of their goods from our customer? And I think that boils down to a bespoke loyalty experience. And we have some exciting things coming. I would say check with us again. In about two months, we are releasing a very, very innovative product that we're super excited about. You know, in the coming months, we're going to be introducing a whole new level for our customers to leverage loyalty and provide their customers' benefits of loyalty.

19:39And are there any areas that make you cautious about handing more of the shopping journey over to machines? Yes, and I'll tell you, I, for one, do not believe that consumers want AI to do everything for them. I don't think consumers are looking to give up agency. I think what they're looking for is ease. I think what they're looking for is efficiency, time savings, but they want to retain agency. I know there are people out there building robotics and all sorts of technology that is about, essentially, my opinion, removing agency. And I don't think that that's, I might be wrong, but in my opinion, that's not where the puck is going.

20:11I think what consumers are looking for is ease. And to that extent, I'm not as concerned. I think that AI can generate tremendous ease. I would say that my biggest concern ultimately is that independence and the channel as a whole doesn't recognize the risks of ownership and potentially partners with parties that whose long-term interests are not aligned with the channel. And I think it's easy to do. It's not to say that these aren't very, very talented, very, very bright people that could potentially make mistakes. I think it's just a question of really recognizing that it's data now that's as much of a product as anything.

20:47And how do I make that a considerable factor in the choices that I make, in the partners that I keep, in the business partnerships that I build? I think that to the extent that independents make wise choices there, there's not much to fear. If they don't, frankly, I think it could be quite damaging to the prospects of the independent channel. Okay. So fast forward 10 years from now, what role do you hope independent grocers play in their communities? And how do you want AI to play a role in getting them there? Yeah. So, I mean, I don't want to be melodramatic, but I think anytime that major innovation has been introduced, it's led to consolidation.

21:24We just saw Kroger buy a giant eagle. It hasn't even, And, you know, the dust hasn't even settled on that purchase. So I think that if we were successful to provide the independent channel with a way to compete with AI without losing its soul, without having to consolidate, then that would be a win. And I do believe that's possible. And frankly, given the parties, AWG and some retailers have invested in our company that are coalescing around us, I think that there's a really good chance that we're able to do that. I mean, to me, ultimately, success 10 years from now would be that there's still a vibrant independent channel in North America.

21:57It is now a third of the grocery sales. I'd like to see the numbers remain at 25 % or above. And if we are able to do that, then what we will be able to look back at is that we protected channel that employs millions of people. And I mean, inside the stores and providing to the stores that is impacting communities all around the country. and in many cases is the only way consumers in certain communities can find fresh groceries. In addition to that, what would be a great win, and it's been one of our driving motivations, is that we're able to help consumers reduce waste, save money, and eat better.

22:32And I think AI in general, and our AI in particular, is quite capable of doing that. So if 10 years from now those two things are true, that would feel like a great win. Great. Well, thank you so much. There's a lot to chew on. And thanks so much for joining us, Tal. It was nice to meet you. My pleasure. Thank you for having me on. Thanks for joining us for another episode of Retail Remix. Be sure to subscribe so you don't miss a future episode. You can find us on Spotify, Apple Podcasts, YouTube, or your favorite podcast app. Until next time, keep mixing it up.