20 Sep Grocery sector and micro-fulfillment system
I was a child when the first superstores started to appear in Spain. I remember when our family went, once a month, and fill the car as much as possible with groceries and convenience products. Fresh products mostly were still bought in local shops, but that trip was a turning point in how families made their groceries. I remember as well the stairs that for five floors, we had to step for bringing all those grocery bags home. Of course, those were other times in awaking Spain after the dictatorship. As a consequence of this change in purchasing habits, many small neighborhood shops closed, changing the map of retail.
Fast forward to these days, and so much has happened in the grocery sector. During the last years, the grocery sector has been the laggard related to e-commerce, with only 2 to 3% of total grocery sales in the U.S. made online. This tendency is changing very quickly. We are observing another revolution in how customers do groceries.
Online grocery sales have grown 15% last year and will keep increasing at two digits to reach $162 billion by 2024, according to Edge by Ascential’s “Food & Beverage Sector Report.” This growth comes with news shopping habits:
Same-day delivery: during 2018, many retailers already prepared a percentage of their stores for same-day delivery. In 2019, Kroger, Target, and Albertsons had over 80% of their stores ready for same-day delivery. Walmart still has only about a third of its stores prepared for same-day delivery, although they are investing heavily in curbside pickup.
Click and collect: also known as BOPIS (Buy On-Line Pickup In-Store). Customers purchase online and pick up their orders in the store. This habit offers the store two main advantages: no freight cost and the possibility to upsell the customer, that may opt to buy some other items once she is in the store.
Curbside pickup: It’s a modality of the click and collect. Customer orders online, and when she arrives at the store parking, one employee of the store will bring his bags to the car. This system, not used generally in Europe at the moment, is growing significatively in the U.S. with a growth of 130% during 2019. Walmart expanded more than 3,000 curbside pickup locations last year, followed by others like Amazon with Whole Foods, Kroger and Instacart. During 2019 the curbside pickup locations grew from 5,615 to 9,408, according to Fabric report “2019 online grocery report.”
These shopping modalities are imposing several constraints to the retailers. A typical grocery list contains an average of 40 to 50 items. To fulfill these orders becomes more complex as the order must be fulfilled quickly. Besides, there are different temperatures for different products: yogurt and milk need a different temperature than ice cream or soap.
Many of the major grocery retailers are still relying on in-store picking fulfillment, having pickers that “shop” the lists in the same store. This system starts to harm the offline shoppers’ experience, as the aisles get crowded.
A new system that starts to call a lot of attention is the micro-fulfillment system. These automated systems are installed in the warehouse of the store. This system helps to fulfill the online orders, replenishing the shelves of the store and match all the new needs of the online orders, as commented above.
An optimal micro-fulfillment system should get good grades in:
- Storage density: Being installed in existing warehouses, many from 8,000 sq. Ft. to 30,000 sq. Ft., to have an elevated storage density, both in SKU’s and goods volume, is one of the essential features for these systems.
- Throughput: An adequate performance is needed for being able to replenish the store and prepare online orders without becoming a bottleneck. Anyhow, in this kind of system, there is no need for the very high performances that distributions centers have, as the volume of online orders is smaller, for being purchases for a local area.
- Response time: Together with the storage density, this is one of the features that any great micro-fulfillment system must-have. These systems must give adequate response time to:
- Click and collect and curbside pickup: once the order is ready, the system still needs to store it until the customer comes. Once the customer arrives at the store, his bags should be delivered in the order of seconds, not minutes. Stores may accomplish this by storing in lockers or towers, or even better, in the same micro-fulfillment system.
- Replenishment of shelves in the store: Eluding to have shelves out of the product is one of the most critical things stores must-do for avoiding lost purchases. Stores are already using robots for checking product availability on the shelves. When they detect a break of stock, launch a message to the system with the need to replenish the shelves. This operation needs a short response time
- Thirty minutes delivery: Players as Amazon, Carrefour, and Kroger are aiming for 30 minutes delivery. To be able to deliver an order in 30 minutes means that the items must be picked and packed a few minutes after the customer placed it. Delivery times will be getting shorter in the future. It is necessary to have systems capable prepare orders in very few minutes, recognizing that solutions for optimization, as batch picking and lists aggrupation, are not possible as you must proceed with the order as soon as it arrives.
This fascinating evolution of fulfillment for the grocery sector is not exclusive. Micro-fulfillment systems are spreading to other industries. Electronics with Best Buy and home improvement with The Home Depot, are just examples of a new solution for the old fashioned omnichannel that now is becoming more of a reality and less of a marketing word.
Now, I will order some ice cream expecting to have it home in 30 minutes, just in time to eat it while watching my favorite Netflix series.