The Neatly Packaged End of Days

The modern grocery store experience is built on packaging innovation. It may also lead to the end of humanity.

Sure, efficiency in agriculture decreased the cost of raw inputs. Rail and trucking allowed the finished product to reach more people. And altering the chemistry of our food has allowed it to stay on shelves longer.

But, cardboard? Truly revolutionary.

In 1850, corrugated cardboard was invented: paperboard folded vertically in arches and smooshed between two horizontal plans like a sandwich. The interior gives the material a disproportionate strength. Inside every flap of cardboard is the science of the cathedral; ten thousand vaulted arches distributing compression. Due to this feat of engineering, pulp wood, once useless, became rigid enough to stack vertically, supporting hundreds of pounds.

Innovations in canning followed, allowing for longer shelf life and lower costs on fresh produce. By 1900, food could now be stored, shipped and handled uniformly. Food packaging was responsible for 20% of all manufacturing in the United States.

Then came plastic.

The first fully synthetic plastic was produced in 1907, but production did not scale until World War II, when plastics became essential substitutes for metals in short supply. After the war, spurred on by industry champions such as DuPont, plastic remained a critical input for commercial manufacturing.

Over the next 70 years, annual production of plastics increased by 230x or 8% per year. For context, global population growth peaked in 1960 at 2% per year and now sits at a paltry 0.9%.

Plastic production outpacing population growth, consistently, is a problem. For the visual learners, imagine loading an additional 100 pounds of plastic onto your back each year, every year, for the rest of your life.

The use of plastic in food packaging is now ubiquitous. How these plastics break down and work their way into our food has raised alarms among scientists. The accumulation of microplastics in our gut and, potentially, our bloodstream has unclear health implications.

I skipped a lot AP Bio in High School, but I can safely conclude that evidence of microplastics in human testicles is not good.

Further Reading:

“Microplastics found in every human testicle” - Guardian Article

I got (Anti) trust issues

The merger of two Grocery chains may not be high drama for you, but the proposed Albertson’s & Kroger tie-up serves as nice microcosm for how anti-trust policy has evolved over the past decade.

Historically, US policy has focused on blocking the merger of companies that could harm consumer welfare. “Welfare” is hard to quantify, so the enforcement body largely focused on high prices and reduced output as measures of antitrust harm.

This narrow view of anti-trust was in place in 2016, when concerns over Amazon’s dominance in E-commerce had reached a fever pitch. The company had moved 2 billion items and had a direct delivery relationship with 40% of US households. (That figure is now well over 80% in 2024). Competitors like Walmart had built their reputation on physical store footprint and lagged sorely behind Jeff Bezos in things like curbside fulfillment and next day delivery.

To catch up, Walmart announced its intent to acquire Jet.com; a venture-backed e-retailer that had developed a novel pricing algorithm and near-zero unit cost revenue model. A proposed acquisition would help Walmart streamline its online shopping experience and become more attractive to digital consumers.

The deal faced pretty limited anti-trust scrutiny; being approved just one month after its announcement in September 2016.

In the year’s following the acquisition, Walmart’s U.S. e-commerce sales saw substantial growth and the company became the largest online grocery retailer in America, now controlling over 40% of all online grocery orders.

FTC Chairman Lina Khan was in law school when the Jet.com merger was approved, and was likely pissed. She was in the midst of writing her influential paper: Amazon's Antitrust Paradox for the Yale Law Journal, which challenged the prevailing antitrust frameworks that enabled the merger to proceed.

In the paper, Khan advocated for a (1) broader interpretation of a “market” which included online channels, (2) a broader interpretation of “consumers,” which included third-party sellers and (3) a broader interpretation of “welfare,” which extended beyond high prices.

Under such a framework, the Jet.com would likely have not been approved. But whats done is done. Flash forward to 2024…

Chairman Lina Khan has been in the seat for over three years and the merger between Albertson’s and Kroger has been held up for over two of them. The retailers have painted the deal as essential to enabling them to bring down prices in a world ruled by Walmart and Amazon.

The FTC is in an unfortunate position.

If they block the merger, they would be robbing the market of a third competitive e-grocer in a duopoly that formed under their watch. If they allow the merger, they will likely face public backlash for uneven enforcement, particularly in a political environment where grocers have been used as public whipping boys for “Greedflation,” “Shrinkflation” and any other type of ‘flation that can fit into a five second sound bite.

Further Reading:

Amazon’s Anti-Trust Paradox - Lina Khan (Yale Law Journal)

The first wave of e-grocers were built before the Cloud. Software companies partnered with grocery chains and installed their software via floppy disk on physical mainframes. Inventory and pricing were not updated in real time. In 2001, less than 20,000 households had ordered anything online. The headache and expense of installation combined with limited demand spelled certain death for the early movers.

Survivors like Peapod transitioned to a warehouse-based model, holding inventory in centralized distribution centers. This enabled more control over product selection, quality, and fulfillment. On the downside, the business model was extremely capital intensive and fairly low margin. Venture Capital eventually dried up. Strategic acquirers swept in. Grocery delivery remained on the third rail of Silicon Valley for over a decade following.

Then, in 2012, a scrappy delivery startup named Maplebear unintentionally missed the Y-combinator deadline. Not to be deterred, Approva Mehta (Founder / CEO) arranged for a demo that involved delivering a six-pack of beer to Y-combinator head, Gary Tan, in under 30 minutes. The real-time demonstration of Instacart's core service—speedy grocery delivery—impressed Tan and the YC team. As a result, Instacart got a last-minute interview, and eventually, they were accepted into the program

MapleBear, later renamed to Instacart, was successful at reviving the partnership model as the rise of cloud and the use of APIs (Application Programming Interfaces) facilitated faster and more seamless connections with grocers’ point-of-sale (POS) systems. Grocers could sync their inventory, pricing, and promotions with Instacart in real time, ensuring a smooth customer experience.

Furthermore, traditional grocers had witnessed the rise of cloud-native delivery giant Amazon, and Walmart’s competitive response. That had vaulted these players to the #1 and #2 largest grocers in America. Big box retailers were now capable of delivering anything to anyone.

Standalone grocers did not have the capital or know-how to build their own grocery solutions. They chose to partner with Instacart instead.

The company weathered an unprecedented surge in demand during the COVID-19 pandemic and a subsequent IPO that was well below its peak valuation. They have also weathered an endlessly entertaining flurry of memes related to how terrible Instacart shoppers can be:

The transition of leadership to Fidji Simo and a slate of acquisitions have pointed to a company continuing to diversify its business lines. The company has focused on becoming a complete “retail enabler,” enhancing the brick-and-mortar store experience with connected hardware like Caper Carts that enable AI-powered scanless shopping, and technology to help run store operations. 

One massive area of growth has been their advertising business. As consumer brands seek to diversify paid media spend away from Meta and Google, they recognize that Instacart has a captive and relevant target audience. Advertising revenues have grown extremely fast, doubling from $500MM to nearly $1BN in two years. The segment now makes up over 30% of the company’s revenue per year.

Further Reading: Sequoia’s spotlight on Fidji Simo. They led the company’s Seed round in 2013

Smart Fridges that are no longer stupid

Smart Fridges have been a stupid idea since the “Internet of Things” entered the English lexicon. A sensor telling you that there are three apples left in your fridge is about as useful as a shit-covered lollipop.

A slight improvement is the fridge that integrates with an ecommerce solution to automatically place more apples in your shopping cart. But who says I haven’t reached my annual quota of three apples already?

What today’s consumer really lacks is time. Scanning the fridge or adding items to a cart saves only a few seconds.

Planning a meal, however, can take 20-30 minutes, and mastering ingredient substitutions takes years. Grandma-level cooking acumen.

One of the things LLMs have done is make recipe creation extremely easy. Feeding a corpus of data, say, the NY Times Cooking library, into a language model enables pretty simple generation from prompts. Even better, a comprehensive ontology for all foods, enabling plausible substitutions based on the rest of the recipe as context. Advances in machine vision are also enabling more granular recognition of food items.

E voila.

One upshot of this technology shift is a reduction in food waste. Think about how many items go bad due to lack of imagination or motivation. Another is an increase in home-cooking, which has all sorts of positive health benefits.

Do you remember when, three weeks into the pandemic, we all wanted to make banana bread from scratch? And then after three months, we all wanted to overthrow the government? Lets get back to the Banana Bread.

Restaurant Brands in your Home

Rao’s Italian Restaurant was founded in 1896 in Harlem, New York. The ten table restaurant developed a reputation for traditional Southern Italian dishes, delivering consistent quality, and an unchanging menu of classics like meatballs, lemon chicken, and the famed marinara sauce.

The restaurant began gaining significant notoriety in the 1970s, when Frank Pellegrino Sr. and Ronnie Straci took over. Rao’s started attracting celebrities and mobsters alike, gaining a mystique that added to its exclusivity and allure. As the restaurant continued to attract more prominent figures and its tables became "owned" by regulars, the difficulty of securing a reservation turned it into a legendary, almost secretive dining spot.

Frank Pellegrino Sr.’s cameo in “Goodfellas” only bolstered the restaurant fame. There was also an actual murder there in 2009.

Murder aside, the restaurant decided to capitalize on it’s popularity by jarring and selling its Tomato sauce. While Rao’s, the restaurant, could only seat ~40 patrons a night, its pasta sauce could reach millions of households per week.

By 2017, Rao’s had graduated from specialty stores to large scale grocers like Whole Foods. The brand was generating a reported $100MM in revenue per year. The CPG line was then acquired by Sovos brands for an estimated $400MM dollars. Not bad for a Mom and Pop shop.

While several other hospitality groups followed suit, the more recent restaurant - CPG explosion can be traced to the start of the pandemic. As their core business model was disrupted by shutdowns, restaurants were forced to find new ways to generate sales. Along with jumping into the takeout food business, many restaurants started creating branded food products and selling them online via their websites. The next step, of course, was moving into retail.

In 2024, restaurants are increasingly becoming grocery store brands and the restaurant CPG model is becoming viewed as a solid way to diversify their business and extend reach nationally – and even internationally.

One company taking advantage of this interest is Keychain. Co-founders Oisin Hanrahan and Umang Dua recognized the challenges that hospitality brands face in finding the right manufacturing partners—a process often dominated by trade shows, brokers, and manual vetting. They saw an opportunity to leverage their experience in building marketplaces, (they built and sold Handy for $165MM) to streamline the connection between brands, retailers, and manufacturers in the CPG space.

Here is the TechCrunch article after their Seed Raise

Deliver us from Guilt

The planet is burning. Climate scientists are clinically depressed. Short of completely removing themselves from modern society, Consumers find it impossible to reduce their carbon footprint. Many want to continue their consumption patterns and be absolved of the guilt.

While there is no panacea, companies like The Rounds are attempting to resurrect more sustainable distribution models. Others, like Erewhon are offering the same [upper] lip [hair] service that Whole Foods did, while not materially changing consumption behavior.

Milk used to come in glass bottles, returned upon the next delivery. It just went out of fashion with the rise of supermarkets to serve those who relocated to the suburbs. Now, everyday e-commerce is this model’s competitor. But traditional e-commerce has been particularly bad for the environment, despite improvements in last-mile logistics and recyclable cardboard. Items still come with excess packaging — plastic fillers and extra packaging — things that often just get thrown away, not recycled.

The Rounds, founded in 2019 by Wharton graduates Alexander Torrey and Byungwoo Ko, began as a zero-waste delivery service in Philadelphia. The company uses a "modern milkman" model, delivering household essentials like pantry staples and cleaning products in reusable packaging. Customers leave out empty containers for collection during subsequent deliveries, creating a closed-loop system that minimizes waste.

After establishing itself in Philadelphia, The Rounds expanded into new markets like Washington, D.C., Miami, and Atlanta. The service has resonated especially well with urban populations that prioritize sustainability and convenience, making it easier for The Rounds to adapt and grow.

Erewhon recognized that people want “natural food,” but nature itself is the inconsistent chaos from which their food has been delivered. They do not want nature but its opposite: civilization, control, an experience designed down to the inch. They want custom millwork and imported glazed tile. The LA grocer has bet that a sufficient portion of the population will pay exceptionally high prices to feel “good” about shopping and consuming.

Feeling good stretches from in the in-store experience down to the sustainable packaging and promises of responsibly sourced ingredients. This was the same promise that Whole Foods and other natural food retailers have made, but supercharged by meticulous planogram design, a prepared food hot bar that rivals any restaurant, and a celebrity endorsement machine that is bar none.

To many, the virtue signaling is the next peg in a long line of “green washing” that is really about showcasing your ability to pay for healthy, sustainably sourced food rather than actually caring about the impact you are making.

Further Reading:

“What is Erewhon? The Strange History of the LA Cult Grocer” - Kerry Howley