Steve Lavenski, Senior Manager of Operational Excellence
Rosen Nikolov, Senior QA Engineer
Is micro-fulfillment (fulfilling customer orders from retail store locations near the customer) the future of retail, and grocery retail in particular? Although grocers have generally been able to avoid the worst consequences of the “retail apocalypse,” they face the same challenges: large stores and warehouses that are expensive to operate and staff as well as expanding e-commerce competition. Many of the changes grocery retailers have adopted in response to the COVID pandemic—things like online ordering, curbside pickup and delivery—will likely continue be demanded after the pandemic subsides. At the same time, these can be labor-intensive activities that add to expenses. So, how can micro-fulfillment increase operational efficiency and optimize business in existing physical locations in this emerging environment? Can these processes be automated? How broadly can automation be expanded?
In this blog post we will cover and express some thoughts on increasing operational efficiency through micro-fulfillment in order to optimize business in existing physical locations of grocery retailers. We will envision micro-fulfillment broadly, as an augmented blend of service opportunities of a brick-and-mortar retail location with a local warehouse for the same location, as well as to the smaller stores in proximity operating under the same banner, an e-commerce preparation center and a large “vending machine” for order by and pick-from-store goods.
Online shopping will continue to grow in the grocery retail industry, but it must be approached thoughtfully. Small grocery retailers are unlikely to be able to compete efficiently with large online retailers unless they take advantage of what local physical locations offer. A wide variety of goods and fresh and prepared foods can be offered online and, at the option of the customer, be delivered or picked in the store. Shipping from stores significantly reduces delivery time of online orders. The largest e-commerce sites heavily rely on “next day” delivery. A well-organized grocery retailer can easily offer “same day delivery” to its customers within its area of items that customers know and trust.
Micro-fulfillment operating out of existing stores
A micro-fulfillment center (MFC) can be established as a warehouse within a large store dedicated to serving that same store location. The MFC unit can prepare and dispatch the same day all online orders within its area. This could be convenient for many customers wanting or even needing to reduce the time they spend traveling to a store or shopping in the store. Online orders delivered the same day and in-store pickup orders can carry and consist of shelf-stable food as well as perishable fresh goods. Customers can place online orders and the retailer’s system would identify the closest store for in-store pickup of that order or have it prepared in that same location for same day delivery.
Micro-fulfillment operating as neighborhood warehouse
Another scenario is to have the MFC act as a warehouse serving smaller stores in proximity that operate under same banner. It may not be cost effective for a smaller store to operate its own in-store MFC, but it may be possible to optimize the lower logistics costs of its larger nearby sister stores. Many retailers have different store formats, from large superstores to proxy neighborhood stores. A large store gets its merchandise on large parcels delivered by large trucks. That process can be organized so that it can run almost as an advanced logistics facility. On the other end is a small grocery store in a busy neighborhood with limited delivery access. An MFC within a large store could get its merchandise as well as the merchandise for the smaller sister shops. The larger store can operate as a mini-distribution center for the smaller stores in its area, breaking larger deliveries into small deliveries suitable for delivery by smaller vehicles. This model adds flexibility, allowing operations closer to busy areas with smaller formats but still keeping the same fulfillment level as a large store.
The automated future?
Broadening our view, automation, and the principles of the micro-fulfillment could bring even more efficiencies and cost savings. Merchandise is regularly delivered and stored in back rooms waiting to be fulfilled later in sales areas. Now, imagine an automated stocking area behind shelves within the sales area for all high-demand goods with insufficient shelf space for the whole business day, risking lost sales. Could some of the sales space be leveraged for automated stocking? This zone will be invisible for the customers but if well-organized, or even robotized, the MFC could operate as self-stocking, increasing shelf availability and reducing labor required for restocking of those goods.
Pushed even further, what about an unmanned, automated within-store concept which could be operated as a large vending machine for presenting, stocking and restocking goods of high demand that can be combined with self-checkouts for a faster shopping experience? The same facility could also serve for virtual (touch screen) merchandise selection by customers. No real items need be present. Rather realistic pictures (why not 3D holograms?) are shown instead. Last but not least, the same micro-fulfillment automated unit can serve as a picking goods location for all pick-from-store online and order-by-phone orders so the customers would save time searching for those goods in need. This would still offer a traditional store visit but adds a layer of advanced shopping. Such units could easily operate 24/7 without the need of human assistance.
Micro-fulfillment: The new normal, the future or both?
Grocery retailers with a significant store presence must think flexibly and creatively about the best use of that presence to support online and automated shopping experiences. Establishing an MFC, whether within a store or as a micro-warehouse within a large store, is something every grocery retailer must explore. The trend to online and automated grocery shopping has only been accelerated by the pandemic, and there is no evidence customers will give up the convenience they provide.