Why We Invested in Wasteless
Since I moved to Israel nine months ago, Vanessa and I have been increasingly interested in impact tech’s opportunity to reduce food waste, as one third of food is wasted from farm to fork. This is a terrible misuse of precious resources — seeds, energy, water, land and labor — especially as the world’s population is estimated to grow to 10 billion by 2050. Moreover, food waste across the value chain accounts for 8% of all greenhouse gas emissions[i]. That’s more emissions emitted from every country except China and America. For that reason, UN Sustainable Development Goal (SDG) #12.3 was set to halve food waste at the retail and consumer level by 2030.
We are excited to put a dent in SDG #12.3 and back co-founders Oded Omer and Yossi Regev and the rest of the Wasteless team. Wasteless is innovating pricing at grocery chains to prevent the waste of perishables (e.g., dairy, meat, baked goods etc.), while increasing store revenue.
Bringing Intuitive Pricing to Grocers
The idea behind Wasteless is very intuitive: why should perishables that expire in days cost the same amount as items that expire weeks later? Wasteless deploys dynamic pricing, the practice of changing prices based on supply and demand used by Uber and Amazon, for perishables. Items with earlier expiration dates are automatically discounted based on store dynamics, the product, brand, and time. Wasteless’s software connects to the grocery store’s inventory system, and point-of-sale system, while sending price changes to an electronic shelf label (ESL) twice a day.
Wasteless’s reinforcement learning algorithm improves over time, learning customer behavior and refining its price modeling. In doing so, Customers are nudged to purchase goods with a closer expiration date for the discount. Produce items close to expiration are no longer discounted by large percentages based on instinct, which may be ineffective and pricey.
Thus far, Wasteless has piloted with an international Spanish retailer and demonstrated that its algorithm increased revenue of piloted perishables by 6.3% and decreased the cost of waste by 32.8%. Pilots are underway with additional European grocers and Wasteless anticipates having a North American presence by 2020.
Prevention over Recovery and Recycling
The beauty of Wasteless is that it prevents food waste whereas competitors focus on reducing food waste downstream either via food recovery — donating surplus food to feed the hungry — or food recycling — diverting food waste from landfills for an economic purpose (e.g., for animal feed, biogas, compost).
The EPA and food waste experts prioritize prevention because it maximizes economic, social and environment benefits[ii]. Prevention decreases unnecessary demand up through the food production chain. Recovery and recycling have an important role to play downstream from Wasteless, but they still stress environmental resources and consist of additional operational, labor, transportation, and energy costs.
From our due diligence process, we came away extremely impressed by the passion and relevant experience of the management team. In 2017, Oded and Yossi left their roles respectively as CTO / Head of Innovation and Software Lead at WeisBeerger, the beer IOT start-up that was sold to AB InBev for $80M in January ‘18, to begin this journey.
We also value Oded’s prior experience as a co-founder and in multiple functional roles. He held positions in product and business development, as well as led large-scale engineering and integration projects.
Rounding out the management team in the role of Chief Commercial Officer is Ralph De Viers. An entrepreneur and a butcher based in Amsterdam, Ralph took a family-owned, high-quality meat supplier, grew the business and eventually sold it to Group of Butchers, one of the largest meat suppliers in the Netherlands. For five years, he was the CCO and a board member of Group of Butchers and his experience gives us confidence in Wasteless’s ability to continue to build out the proper sales channels with grocers and partners.
Additional Drivers of the Investment
In addition to Wasteless’s differentiated approach in preventing food waste and its all-star team, below are industry dynamics that also underpin our investment:
- Profitability Margins of Grocers: Grocery store profit margins are typically tight ≈ 2.5%. Additionally, the cost of food waste is on average ≈ 1% of revenue. Wasteless’s ability to decrease the cost of food waste even slightly, will have significant impact on bottom-line growth, making this a pure business play for CEO’s of retailers.
- Market Composition: The grocery store industry is fragmented, but chains are large with many stores. In the US, the top 50 chains have 56% of the 38,571 stores and the top six chains in the US have 37% of the market[iii]. Europe, home to 108,910 stores, typically has a couple of large chains dominating a national market. Once proving out the value proposition in a pilot, minimal sales effort is required to scale across a chain. The company charges per store. A sale and full roll-out to one top customer has potential to change Wasteless from an early-stage start-up to a growth-stage start-up.
- Public Sector Pressure to Reduce Food Waste: Public sector attention is increasingly focused on reducing food waste, especially in Europe. EU waste legislation requires member states to monitor food waste annually, starting in 2020. France passed a law in 2016 banning grocery stores from throwing away edible food. Public sector pressure is reflective of consumer values and the fact is that sustainability in the grocery store space is a strategic imperative for grocers.
- The Whole Foods Effect: Amazon jumping into the fray via its acquisition of Whole Foods only intensified the urgency for food retailers to make technology investments. The future brick and mortar grocery store will be using big data more effectively and decreasing in-store manual efforts. Wasteless facilitates this transition. The software centralizes and optimizes pricing and waste management for produce. It also provides the business case for stores to begin transitioning from paper labels to ESL’s, which decreases labor costs and improves customer experience.
This our first investment in our ZORA Israel Impact Fund. We are thrilled that Wasteless is joining us on our mission to showcase that Israel is the leading place for impact tech world-wide. Stay tuned.
[i] Drawdown.org — Reduced Food Waste
[ii] ReFed.com — An Economic Analysis of Food Waste Solutions
[iii] Regulations and Guidance for Food Donations[iv] Progressivegrocer.com — The Top 50 Grocers of 201 8 Ranked