Crashing markets are pushing investors to pull funding from startups that make internet-connected devices for retailers, threatening to stifle an innovation pipeline for emerging tools like smart shopping carts and inventory management robots.
Many stores, which have come to rely on software-connected systems during the Covid-19 pandemic, are now harnessing these capabilities to gain efficiencies that can help keep prices low amid stubbornly high inflation. and rising interest rates, industry analysts said.
According to analytics firm PitchBook Data Inc., the number of funding deals for startups developing Internet of Things technology, or IoT — as software-connected systems are known — has fallen to a low of 300 deals in six years. years in the second trimester.
During the same period, investment dollars in IoT startups fell 57.2% from the previous quarter, to around $2.8 billion – with notable exceptions in areas such as security and connected vehicles — outpacing a 22.2% decline in funding for all information technology startups, which fell to $59.5 billion, PitchBook said.
Total venture capital funding for startups developing IoT technology specifically for retailers is on track to drop 65.1% from 2021 to $188.2 million by the end of the year, one of the hardest-hit sub-sectors of the IoT market, the company said.
Like most business software applications, connected devices have become an integral part of retailers’ day-to-day operations in recent years.
Kroger CIO Yael Cosset.
Photo:
The Kroger Company
Hooks Co.
uses connected device software and sensors to monitor store occupancy, activate smart payment carts, track transportation systems and regulate temperatures in pharmacy refrigerators – most recently to ensure Covid-19 vaccines are stored in optimal conditions, said Yael Cosset, chief information officer supermarket chain.
He called IoT a “high priority” for the Cincinnati, Ohio-based company, which last month announced a $24.6 billion deal to acquire rival supermarket chain Albertsons, a move that would expand its footprint to approximately 5,000 stores across the United States.
“The different types of IoT devices we deploy are a critical component of our information systems, allowing Kroger to continuously understand current conditions in our stores so we can take steps to minimize waste and maintain pricing. low,” Mr. Cosset said.
Cosset said he was monitoring the slower pace of investment in developing IoT technology at an early stage, citing potential impact in areas such as software applications that would allow the company to extract even more value of the data generated by the operations.
As the economy slows, retailers will need even greater access to near real-time sales and inventory information, said Leslie Hand, group vice president of the retail insights division at detail from market research firm International Data Corp. Tools like IoT can allow stores to fine-tune their operations through software-connected systems that track inventory management, orders, returns, curbside pickup, and in-store engagement, a- she declared.
“They can also orchestrate the movement of products and people more efficiently, supporting cost reduction efforts,” Ms. Hand said.
Although market volatility is expected to dampen IoT investment in the coming months, she said, “a positive indicator continues to be interest in acquisitions of artificial intelligence and IoT capabilities from various types from established market leaders in the industry”.
Globally, retail sector spending on IoT technology is expected to reach $62.6 billion this year, up from $55 billion in 2021, and is expected to reach approximately $95 billion by the end of 2026 , growing at a five-year compound annual rate since 2021 of 11.5%, according to IDC. IoT spending across all sectors this year is expected to reach $767 billion, up from $690.3 billion in 2021, growing 10.7% annually to reach around $1.5 trillion by 2026, said said the company.
Scott Kessler, executive vice president and chief information officer of BJ’s Wholesale Club Holdings Inc., said the store has deployed IoT technology in areas such as in-store sensors to monitor the use of wireless services by customers.
It also supports inline curbside pickup and drives sensors that monitor product temperatures on trailers, Kessler said. He said the company will continue to invest in these and other technology tools that help customers, despite tougher economic conditions.
Goya Foods Inc. chief information officer Suvajit Basu said the company has had tens of thousands of IoT devices connected to conveyor belts in its manufacturing facilities for about a decade. IoT technology is essential for the food company, Mr. Basu said, as it also allows Goya to implement cybersecurity projects in its factories.
Mr Basu said retailers are likely to retreat from IoT spending due to economic pressures and are still recovering from the business impact of the pandemic. “People are cautious,” he said. In contrast, he said Goya’s technology investments in a tougher economic climate helped the company grow.
“We see companies that invest during recessions come out much stronger,” Basu said.
—Belle Lin contributed to this article.
Write to Angus Loten at Angus.Loten@wsj.com
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