Issue #35: Will AI Take Over Retail?

For at least a year now, especially in the startup/tech circles I run in, AI has been the topic de jour. However, in this newsletter, I have not written much about it, mentioning it in just 12 of 34 pieces so far. Most mentions have been links in the news section highlighting articles that discuss this. Why? I am not hesitant about AI, in fact, I use it almost daily in my work. Some would say I am very bullish about the prospects of AI writ large. However, I did have three main concerns:

1. There is a lot of noise around AI and it takes some time to shake out what is real and what is “BS”, plus early on the goal posts move so frequently

2. Retail is a slow-moving industry, and it takes time to roll out new tech

3. Retail is very complex, and while AI can solve that, it is not as easy to build the solutions

Still, this week there was an announcement I really do believe that will fundamentally shift commerce. An announcement it was known that it was on the way eventually, but now that is here will have major implications for the retail industry. The new development is OpenAI’s Operator technology. Now what operator is, it is not inherently a retail specific tool. Operator is “an agent that can use its own browser to perform tasks for you,“ meaning it you tell it to do stuff online and it will do it. There are limitations, but in a full scale, fully developed, you tell it to do something and poof its done, like your own personal assistant at your fingertips. With this technology, what can be done is almost limitless. Out of all the industries, it is very telling that on stage announcing the technology, OpenAI decided to highlight OpenTable, where you can use Operator to book reservations at restaurants through it. Here is what it looks like:

Pretty impressive! As mentioned before, the possibilities are limitless. You can see how this could easily replace a lot of the reasons people would shop in retail, namely the curation as it gets to know your personal preferences and habits better than any retailer due to the vast processing power and data ChatGPT has on you. For two reasons, I do not think this is the ultimate doom for retail. First, especially initially, this will be replacing many online tasks and free up more time for retail, like how automatically making the reservation can help you have more time to spend in the restaurant. Second, people still want experiences and physical touch with many items, which cannot be replicated digitally. Still, I think this amps up the pressure on retailers to really deliver on the in person experience and maximize the physical nature of retail. Why go out to a restaurant when you can tell Operator to DoorDash you some food. Regardless, some exciting developments coming up. Plus, we haven’t discussed how this could feature within the retail experience (for another time!).

Dollar General Expand Private Label

In 2024, sales of private label (store brand) grew by $9B year-over-year, a pretty impressive leap. That meant the total Private Label sales in the United States grew to $271B, a jaw-droppingly big number. Why? As consumers are looking for value, combatting inflation, and trying to make their budget stretch further, private label is a very attractive option. Plus, the quality is usually comparable to other brands. On top of that, the branding has been improving, so customers are more accustomed to buying it. Retailers have noticed this trend, so they are deciding to expand their assortment to keep pace. Dollar General is just the latest to add additional private label to their assortment. However, unlike some of the other retailers, they have focused on more traditional, value-based private label rather than the Trader Joe’s style fun innovative private label. It will be exciting to follow along how this private label does, as well as other private label trends at other retailers.

2025 Prediction: More Stores Closing

Coresight Research published its analysis of store openings and Closing in 2025 and the headline is store closures. Their prediction is retailers will close 15,000 stores this year, more than double the 7,325 closures in 2024. 2020 was the record for store closures. On the opening side, they predict less than openings than 2024 at 5,800 stores compared to 5,970 opened in 2024. This would equate to a net loss of 9,200 stores, which is a lot. On the optimistic front, there is going to be a lot of retail square footage open to innovate in. On the pessimistic front, who is going to fill that space? Another thing to monitor as we progress through the year.

Here are some of the highlighted openings and closings so far:

Openings - Aldi (170), JD Sports (124), Burlington Stores (104), Pandora (61), Barnes & Noble (60) and Dollar General (60)

Closures - Party City (738), Big Lots (601), Walgreens (333), 7-Eleven (148), Macy’s (51) and Kohl’s (27)

Chili’s Up 31% Q4 2023 vs Q4 2024

Like many other restaurants, Chili’s has been focused on value this year and its message has been working, in particular its Triple Dipper menu. Same store sales were up 27%, bolstered by a 20% increase in foot traffic. Unlike their competitors, like Darden, who have been struggling, Chili’s has the right mix of value customers who are resonating with it. This growth has been on top of menu rationalization, which shows sometimes less is more. It will be interesting to see how this proceeds for Chili’s in the future. On the one hand, it is reinvesting the success and profits into redoing 200 stores. On the other hand, Chili’s will be fully deploying TurboChef ovens, which have come under criticism from Wonder’s use of them to heat up frozen food and serve it. If Chilli’s plans on utilizing them in a similar manner, it could lead to quality issues, which could drive customers away.

• Summary: Radius Butcher and Grocery is a new farm-to-table grocery store opening in Austin this quarter. It is a mix of grocery quality you would find at a farmers market with prepared food as well. Everything is from the local area.

• My Take: Grocery is another area I am paying attention to in addition to the fast-casual bowl space this year. There is another Erewhon, regional premium grocer, and with the growth of the major metros in Texas, it could make sense to be there.

• Founder(s): Kevin Fishner

• Funding: No public funding

• Number of Locations: 1 (Soon to be open in Austin)

• Social Media Following: 3k on Instagram

Additional Links:

1. Starbucks is shaking things up - here is a sneak peak (more to come next week)

2. Walmart has recovered from its slow start in eCommerce grocery to lead in the space (see more here)

3. Shake Shack replaces its Chief Marketing Officer with a Chief Growth Officer and a Chief Communications Officer (read more here)

4. LVMH reports a better than normal Q4 2024 due to strong retail growth, in particular, Sephora (read more here)

5. Brian Niccol wants to double the number of Starbucks in the United States - wow (read more here)

6. Miso Robotics develops a new robot for restaurant kitchens (read more here)

7. Dunkin wants to build a cinematic universe on the back of its successful partnership with Sabrina Carpenter and others (read more here)

8. McDonald’s has also switched out its CMO (read more here)

9. UPS plans to reduce its partnership with Amazon by up to 50% (read more here)

10. VF, the owner of Vans, Timberland, and North Face, is back to growth (read more here)

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