In volatile markets, investors are reluctant to fund startups that make internet-connected devices for retailers, emerging tools like smart shopping carts and inventory management robots threaten to choke the innovation pipeline.
Many stores that have begun to rely on software-based systems during the Covid-19 pandemic are using those capabilities to gain efficiencies that could help them lower prices amid stubbornly high inflation and rising interest rates, industry analysts said.
The number of funding deals for startups developing Internet-of-things technology, or IoT, also known as software-connected systems, fell to a six-year low of 300 deals in the second quarter, according to analyst firm PitchBook Data Inc.
Over the same period, investment dollars in IoT startups fell 57.2% from the previous quarter to about $2.8 billion (notably excluding areas such as security and connected vehicles), outpacing a 22.2% decline in funding for all IT startups. for $59.5 billion, PitchBook reported.
Total venture capital funding for startups developing IoT technology specifically for retailers will fall 65.1% from 2021 to $188.2 million by the end of the year, one of the hardest-hit subsectors in the IoT market, the firm said.
Like most commercial software applications, connected devices have become an integral part of retailers’ daily operations in recent years.
Yael Cosset, head of the supermarket chain, uses connected device software and sensors to monitor store occupancy, enable smart checkout carts, monitor transport systems and adjust the temperature in pharmacy fridges – a data officer to ensure the latest Covid-19 vaccines are stored in optimal conditions.
He called IoT a “high priority” for the Cincinnati, Ohio-based company, which last month announced a $24.6 billion deal to buy rival supermarket chain Albertsons, expanding its footprint to about 5,000 stores in the U.S. will expand.
“The various types of IoT devices we deploy are a critical component of our information systems and allow Kroger to continuously understand the conditions in our stores so we can take steps to minimize waste and keep prices low,” said Mr. Cosset.
Mr Cosset said he was following a slower pace of investment in early-stage IoT technology development, with potential impact in areas such as software applications that would allow the company to extract more value from data generated by operations.
As the economy slows, retailers will need more near-real-time access to sales and inventory data, said Leslie Hand, vice president of retail research at International Data Corp. Tools like IoT can allow stores to streamline operations through software-linked systems that track inventory management, orders, returns, outside pickup and in-store engagement, he said.
“They can also organize product and people movements more efficiently, supporting cost reduction efforts,” Ms Hand said.
While market volatility is expected to dampen IoT investment in the coming months, he said, “a positive indicator continues to be interest in acquiring various types of AI and IoT capabilities from established industry market leaders.”
Worldwide retail sector spending on IoT technology is expected to reach $62.6 billion this year, up from $55 billion in 2021, and to grow at a five-year compound annual rate from 2021 to nearly $95 billion by the end of 2026. 11.5% according to IDC. This year, IoT spending across all sectors is forecast to reach $767 billion, up from $690.3 billion in 2021, and grow 10.7% annually to nearly $1.5 trillion by 2026.
Scott Kessler, executive vice president and chief information officer of BJ’s Wholesale Club Holdings Inc., said the store is deploying IoT technology in areas such as in-store sensors to track customers’ use of wireless services.
It also supports online curbside pickup and operates sensors that monitor product temperature on trailers, Mr. 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 nearly a decade. IoT technology is critical to the food company as it also enables Goya to implement cybersecurity projects at its plants, Mr. Basu said.
Mr Basu said retailers were holding back on IoT spending due to economic pressures and were still recovering from the business impact of the pandemic. “People are being cautious,” he said. In contrast, he said Goya’s technology investments in a tougher economic environment helped the business grow.
“We’re seeing companies that invest in recessions come out stronger,” Mr. Basu said.
-Belle Lynn contributed to this article.
Write to Angus Loten at Angus.Loten@wsj.com
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