Israeli tech keeps retail giants in the game

Trigo offices 2019 / Photo: Yarden Bar

Deloitte: Retailers worldwide invested $6.2 billion in installing Israeli technology in 2018.

Amazon launched its retail website in Israel just one month ago. In recent years, however, Israeli startups have become prominent developers of technologies for the retail sector. A new report by consultancy and accounting firm Deloitte finds that there are now 450 Israeli startups in this sector, which have raised an aggregate $1.5 billion capital in the past four years. The report reveals that the global retail industry invested no less than $6.2 billion in installing Israeli technology in 2018.

The report, written in cooperation with the investment fund of Nielsen and Salesforce, will be presented this week at an event entitled, "The Future of Retail-Tech." The report reviews the Israeli startups operating in the sector and the various areas in which their technology can be applied. The writers of the report also listed the major merger and acquisitions deals made in Israel in the sector in recent years, headed by the acquisition of Dynamic Yield by MacDonald's for $300 million.

Most of the retailers do not sell at all to the Israeli market, but more and more of them have been maintaining a presence in Israel in recent years. This presence usually features mainly involvement in plans for applying technological innovation of Israeli startups, not in corporate investment and venture capital arms. The plans include the JVP Play accelerator program, in which Pepsico and the Tesco supermarket chain are partners; popular clothing firm Asos, which has begun searching for innovation in Israel through the Re:Tech center; Coca Cola, which holds "The Bridge" innovation program; and Walmart, which in addition to being a silent partner in "The Bridge," is also a partner in Team8, headed by CEO Nadav Zafrir. Among Israeli companies, the Super-Pharm chain has begun working with the SigmaLabs accelerator and robotics and automation startup Fabric, and Shufersal has begun a pilot with startup Trigo Vision, which has developed technology for cashier-less stores.

How much money is invested in Israeli retail-tech startups each year, and what are the retailers looking for in Israel?

Deloitte attributes the growth in retail-tech to the entry of the technology giants, headed by Amazon, into the field. The major technology companies have entered the consumer sector, "because the only two assets worth a premium in the digital era are there: data and customer loyalty," says Deloitte Digital partner, coleader, and head of strategy Rani Argov. He believes that competition between the technology giants and conventional retail giants is pushing them towards startups, including Israeli startups. "In order to successfully compete with the technology giants' power, an effective link is needed between conventional companies with resources, customers, and products and startups with technologies, new business models, and progress," he says.

According to Deloitte, retailers invested $6.2 billion just in installing Israeli technologies in 2018. This investment is not all revenue for the startups; it is the total spent on installation. For example, a pilot by a retail chain at hundreds of branches costs a great deal for adapting the technology, making physical changes in the branches, training for employees, etc. The level of investment rose by 19% in 2018, and by 50% in the past three years.

The report shows that Israel has become an important focus of retail technologies in three main areas in recent years: marketing and sales technology, designed to find new customers and retain existing ones using smart search engines and big data analysis; checkout technologies, including information security and cashier-less supermarkets; and automation and streamlining technologies for managing warehouses, deliveries, and inventory. All of these are areas in which Amazon and other technological retail companies have an advantage over the conventional retailers relying on physical stores.

"The retailing and consumer giants face three main challenges with startups: the need to find the technologies suitable for them, the ability to utilize the right technologies in their business strategy, and the rapid growth challenge," adds Deloitte director services to MNCs and Deloitte Catalyst cofounder Amit Harel. "The Israeli ecosystem provides a unique solution to the first two challenges, because Israeli startups are very focused on technology. In our work with the world's largest retail companies, we see that they are trying to combine work with large technology players and work with startups. For this reason, Israeli startups have to find and highlight their uniqueness within the value chain, but without ignoring the other links in the chain."

For example, Fabric (formerly CommonSense Robotics) is developing robots for logistics centers in city centers. The robots are used to package retail products and prepare them for delivery in order to make the process more efficient and shorten delivery times. In late October, the company announced a $110 million financing round, the proceeds from which it will use to build a logistics center in New York, among other things. According to the Deloitte report, the company has already carried out a pilot with a US food retailer, and managed to reduce the retailer's operating costs by 10% in less than a year. Another example is UK supermarket chain Tesco, which announced this month in a call with investors that it had taken part in the most recent financing round of Trigo, founded by brothers Michael and Daniel Gabay, although it did not disclose how much it had invested. Earlier, in July, Tesco announced that it was cooperating with Trigo, and was opening a store with no checkout based on its technology.

Improving the customer experience

Cooperation with startups is not merely to save on costs by replacing employees with robots and machines; it also involves personalization and better knowledge of customers. This does not necessarily replace people, but it makes it possible to increase per customer sales. For example, faced with the digital food delivery companies, such as Wolt, MacDonald's is seeking to use startups to remain relevant by both launching its own delivery service and adopting the technology of Dynamic Yield, which makes it possible to segment web surfers and customers and adapt products to them in order to encourage them to buy more. Shopping website Farfetch uses the technology of Syte, an Israeli startup, for smart search through a picture on the website.

"In a business with relatively low profit margins, the ability to use technology to exploit assets, such as the factory, the story, the shelf, and the customer, to the full can be the difference between a profit and a loss. This is what startups give the conventional retailers and manufacturers," Argov adds. "All through the report, it is evident that the effective startups are those that enable retailers to improve their ability to make a bullseye proposition, and also improve the end-customer's experience, and their own efficiency, so that they can stay in the game."

Another retail giant investing in finding and installing Israeli technology is Walmart. For example, the technology of Israeli company Twiggle provides Walmart with advanced search services. Last year, Walmart acquired Israeli startup Upstream Commerce for Flipkart, its Indian subsidiary. The Israeli company developed a system for real-time pricing of products and optimization of the product range.

Another example is eBay's cooperation with Israeli analytics startup Market Beyond. For the past two years, eBay has been a customer of Market Beyond, which is developing artificial intelligence to analyze the supply of products and users' behavior. The company analyzes the causes of losses at retailers, and eliminates them in the future. eBay lost over $1 billion in 2017, then made a $2.5 billion profit in 2018. According to eBay's reports, other than the fact that it paid a lot of tax in 2017, the difference in profit between 2017 and 2018 resulted from smaller losses and higher revenue in 2018 than in the preceding year. Deloitte believes that Market Beyond's technology enabled eBay to reduce its losses by 10% a year.

Published by Globes, Israel business news - en.globes.co.il - on November 18, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Trigo offices 2019 / Photo: Yarden Bar
Trigo offices 2019 / Photo: Yarden Bar
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