What’s in store for grocers?
18 February 2020
The e-grocery challenge and how to adapt.
E-commerce has been an unstoppable force in the retail sector over the last ten years. It has grown to account for up to 20% of total sales. Yet, the grocery sector has remained almost immune to this disruption. In 2018, online grocery deliveries only made up about 7% of the whole sector in the UK.
That is now changing fast, and demand for e-grocery services is accelerating. According to an analysis from Mintel, online grocery sales in the UK are set to increase by 60% by 2023.
Reaching the limits of manual picking
Grocers have been meeting current e-grocery demand by employing manual pickers. These surrogate shoppers collect orders from supermarket aisles with other shoppers. “This approach is labour- and time-intensive,” says Shane Faulkner, Head of Sales for Swisslog in the UK. “The market is not willing to absorb the full cost of order fulfilment. That is forcing grocers to sacrifice profitability to remain competitive in the e-grocery space.”
With their oversized carts, surrogate shoppers also create congestion in store aisles. This can impact the shopping experience for other consumers. According to industry sources, a grocery store will start to feel congested when just 6-8% of purchases are e-commerce orders fulfilled by manual pickers. That’s a level some stores are already at and most will reach within the next two years. Shane Faulkner explains: “Grocers who continue on this path risk growing their e-commerce business at the expense of more profitable in-store sales.”
The Need for Automation
These factors are causing most major grocery chains to explore opportunities to automate e-grocery fulfilment. This can prove challenging on several levels.
First, it may involve bringing automation into retail stores that were never designed to accommodate it. Space constraints within the existing retail footprint will create challenges for many traditional material handling systems. The alternative is major new investments in dedicated fulfilment facilities.
In addition, e-grocery order fulfilment can’t be fully automated. Most orders will include some combination of non-perishable items along with perishables, which don’t lend themselves to automation. These items are also often sold by weight rather than piece, which introduces additional challenges.
Shane continues: “With the market still in its infancy, grocers are evaluating automation solutions. It’s important to optimise the use of technology while retaining flexibility and speed.”
The One-Hour Mandate
Consumer needs are still evolving and vary in different neighbourhoods within the same market. Today, consumers in densely populated urban areas are showing a preference for in-home delivery. Those in surrounding suburbs seem content with in-store pickup. Only time will tell if consumers will begin to favour one over the other.
Expectations around speed of fulfilment are easier to predict. Groceries aren’t a “want,” like many other e-commerce purchases. They are a need that is consumed continually in most households, creating the demand for short delivery times. Waiting even a day or two for grocery orders will prove unacceptable for many.
“Large grocers are using one-hour fulfilment as a target for e-grocery customers,” says Shane. “This is a very aggressive goal and will not be possible in all cases. But consumer expectations will be shaped by the situations where one-hour fulfilment is possible.”
Urgency and Uncertainty
Grocers are rightly feeling a sense of urgency around e-grocery fulfilment. With the total market for e-grocery services projected to reach $100 billion by 2022, the stakes are high. Get it right and tap into the biggest growth opportunity the industry has seen in years. Get it wrong and risk losing ground to competitors.
Despite the challenges, grocers have several advantages when it comes to e-commerce. They enjoy a concentrated and localised market that removes some of the barriers to last mile delivery. Every home needs groceries and local competition is limited to four or five retailers. Grocers may be able to consolidate multiple deliveries within the same neighbourhood, much like a parcel carrier.
Grocers also have the benefit of having a local network of stores that can be used to support both home delivery and curb-side pickup. Shane Faulkner shares his thoughts on what grocers can do to use this to their advantage. “Key to their success in leveraging that asset will be choosing the right distribution strategy. Grocers should opt for automation that enhances productivity, reduces costs and can adapt to future change.”
E-grocery fulfillment strategies
There are a number of strategies being employed by grocers today to introduce automation. With the right technology, it is possible to improve the speed and efficiency of e-commerce fulfilment.
Some grocers are developing centralised fulfilment centres. These support multiple stores in a hub-and-spoke arrangement. The automated fulfilment centre assembles orders for all non-perishable items and then bulk ships those orders to the stores. There, they are topped off with perishable items. Completed orders are then available for curb-side pickup at the store or delivery to the home.
This approach allows the fulfilment facility and automation system to be designed hand-in-hand. These facilities can be designed to accommodate continued growth by using modular automation solutions that enable a pay-as-you-grow approach.
Shane Faulkner says: “While this concept is great in theory, it can be capital intensive and create an extra layer of transportation between the hub and the store. It has the potential of limiting speedy delivery times.”
Bolt-on Store Automation
In many cases, it will make sense for grocers to bring automation directly to the store. Using compact, robotic automation technologies, they can create small fulfilment centres at the back of the store. This automates current manual processes for non-perishable item picking while utilising store inventory to top off orders with perishable goods. Allowing stores to fill complete orders from one location reduces transportation time and costs.
This scenario could support faster fulfilment times than the hub-and-spoke approach. But space limitations mean most locations will not be able to bring perishables and bulk items near the automation system. This means productivity is hindered by manual pickers who still need to go out into the store to complete orders.
Shane adds: “Creating a full fulfilment centre may be possible in some locations by expanding the store. This requires more investment but could enable order cycle times similar to a larger hub-and-spoke warehouse without the need to transport orders to the store.”
The Automated Grocery Store
Rather than bolting on automation to the back of the store, some grocers are experimenting with moving it to the middle of the store. This creates a new type of grocery store that combines automated e-fulfilment with traditional shopping. This is still an emerging concept, but early executions place an automated storage and retrieval system in the centre of the store. The system holds the majority of the non-perishable items, while perishable and speciality items are located around the outside of the store.
Shoppers have the flexibility to place their orders in advance or while in the store. Shane explains: “They can choose to pick their own perishable and speciality items or have the store complete their order for pickup or delivery. However, it remains to be seen how consumers will respond to the integration of automation into the shopping environment.”
Make your way to the checkout
E-grocery sales are ramping up, and it's time for grocers to finalise their strategies. “The journey to supporting same-day home delivery and curb-side pickup won't be without its challenges. But by selecting the right automation partner, the pressure can be lifted,” concludes Shane.
To read more and find out about the best technologies for e-grocery fulfilment, download Swisslog's latest whitepaper: A Shopper's Guide to E-Grocery Fulfillment from swisslog.com/whitepapers.