Robots Are Coming To Grocery Fulfillment: Can They Drive Profitability?
As I’ve written several times before, there are multiple reasons why the grocery category is well under-penetrated relative to other e-commerce categories. Multi-temperature products, awkwardly sized and shaped products, product and SKU proliferation, delivery challenges, combined with razor-thin margins have kept e-commerce penetration today to under 3%. However, there are multiple efforts underway to change this, from massive investments in buy online, pickup in-store infrastructure (Walmart), third party, on-demand fulfillment (Instacart) along with a host of new investments in sophisticated robotics and AI from a variety of start-ups and established companies. These efforts are all designed to address the fundamental challenge of reducing costs/increasing efficiency to make grocery e-commerce more profitable, or frankly, profitable at all.
Three new developments in robotics are all working on the profitability equation for grocery e-commerce. Commonsense Robotics, Takeoff Technologies and Kroger/Ocado are approaching this issue from different but equally fascinating angles. All are implementing automation and robotics in different ways, but they are designed to address one of the key fundamental cost challenges—picking groceries. The other, of course, is delivery, which also is seeing advancements through route management, autonomous delivery and naturally, not delivering at all (pick-up).
As Scott DeGraeve, COO and Co-founder of Locai Solutions explains, “Robotics in e-grocery are aimed at making a step function change in labor costs and throughput time. As customer penetration grows, more and more retailers are feeling the effects in their busier stores of the challenges of the in-store pick”. While the efficient way into e-commerce is through utilizing existing in-store infrastructure, it is not likely the long-term solution. DeGraeve cites congestion in the aisles, higher out of stocks, and issues with labor productivity as key issues, with “stores designed to sell products, not provide for an efficient 40+ item order pick”.
But, are robots truly the answer? Three notable efforts are designed to address this.
Takeoff Technologies, creator of the world’s first automated micro-fulfillment centers (MFC’s) recently announced a partnership with Wakefern Food Corp., the largest retailer-owned grocery cooperative in the U.S. Takeoff is an eGrocery solution that leverages automation on a hyper-local scale. Orders are placed online through established retailers and Takeoff’s automated technology fulfills the order using robots in the MFC’s. These centers are significantly smaller and less capital intense than full scale solutions, which could allow faster deployment and centers closer to the end consumer. The first such center will open in Clifton, NJ and work with Wakefern’s ShopRite from Home platform. It promises orders of up to 60 items being fulfilled in minutes.
CommonSense Robotics, an Israeli start-up, is also focusing on micro-fulfillment centers. Their twist—the first underground and automated grocery delivery center that will make one-hour deliveries for grocers while utilizing existing space and can also be placed closer to the consumer in denser urban markets. Their new micro-fulfillment center will be in downtown Tel Aviv, located in the parking garage of the city’s oldest skyscraper, Shalom Meir Tower, and will only take up 18,000 square feet of triangular space.
Finally, Kroger’s partnership with Ocado is an example of automated fulfillment centers at scale. Kroger has announced that they plan to build as many as 20 automated grocery warehouses with a capital cost of up to $55 million for the land and equipment. UK based Ocado is clearly a leader in the space and is perhaps the only company (certainly a public one) that has shown grocery e-commerce profitability at scale. Kroger has announced the development of the 355,000 square foot Monroe, Ohio fulfillment center known as “shed” in spring 2021. These centers are also powered by sophisticated technology and advanced robotics and Ocado is perhaps furthest along in streamlining every aspect of the process (order, pick and delivery). The disadvantage of these centers is capital cost, time to build and time to achieve economies of scale.
From in-store pick, dark stores, semi-automated fulfillment, micro fulfillment centers to full scale automated warehouses, the rush is on to figure out a way to lower costs of grocery fulfillment. As always, there will not be a one size fits all solution for the right way to approach the problem. The best retailers will have flexibility in their solutions (urban vs. suburban, delivery vs. pick-up, immediacy vs. scheduled) that ultimately meet consumers, at a profit.