Kroger will open its second Customer Fulfilment Centre (CFC), as part of its strategic partnership with UK-based Ocado, in Groveland, Lake County, Florida.

Entering the market with an ecommerce-only model

Kroger announced in February that one of its first three CFCs would be in Florida, with other sites being developed in Ohio and the Mid-Atlantic region. The decision to site one of the CFCs in Florida is particularly interesting because the retailer does not currently operate any stores in the state. However, it does have a strategic relationship with Lucky’s Market which has been expanding at pace in the region.

Source: Kroger

Will determine feasibility of operating in the north east

Last year, Kroger formed a strategic partnership with Ocado to develop up to 20 CFCs. These will support the growth of its grocery ecommerce business which currently includes store pickup, same-day delivery in partnership with Instacart and a two-day consumables shipping programme, Kroger Ship. The 375,000 sq ft site in Florida is expected to become operational in 2021. The success of an ecommerce-only model in the state will determine where else the retailer could penetrate without opening any physical stores. The high density, yet competitive, north east is likely to be within the retailer’s sights.

Different models under development

Kroger is adopting a relatively unique approach to ecommerce fulfilment in the US through its Ocado partnership. Several other models are being piloted as retailers seek to build a cost optimal solution. Walmart, Ahold Delhaize and Albertsons are piloting hyper-local robotic fulfilment while most US grocers are partnering with third-party crowd-sourced delivery platforms for same-day delivery. Instacart, the leading operator in this space, will start to roll-out a store pickup model this year. With the channel forecast to hit $60bn by 2023, building a profitable and scalable model is critical for retailers aiming to maximise the sales growth opportunity.

Kroger is expanding its autonomous grocery delivery service to Houston, following an earlier test in Scottsdale, Arizona.

Almost 1,000 deliveries completed as part of pilot programme

Kroger is working with self-driving vehicle company, Nuro, for the expansion of this programme. It will operate from two Kroger stores in the Houston market, making deliveries into four zip codes. Like Scottsdale, the pilot will start with Nuro's self-driving Toyota Prius fleet before introducing the next generation of the custom driverless vehicle later this year. Through the first stage of the pilot, Kroger and Nuro have successfully and safely completed thousands of deliveries to customers in Scottsdale.

Potential to significantly scale-up in Houston

The initial pilot has confirmed for Kroger the flexibility and benefits provided by autonomous vehicles. Customers have also been very receptive to having their groceries delivered in this way. Through moving the test to Houston, where Kroger has a significant presence, there is an opportunity to significantly scale up the programme in the future.

Improving the economics of grocery ecommerce

Self-driving vehicles could be an important component in improving the economics of grocery ecommerce. Last-mile delivery represent a significant proportion of overall costs. Retailers in North America are currently testing several fulfilment and delivery models as they look to reduce channel costs. These include hyper-local robotic fulfilment, third-party crowd-sourced delivery platforms and shared, centralised distribution models.

Kroger is just one of many retailers pushing forward with automated last mile trials. Check out our delivering the goods blog, which rounds up all the latest developments and what’s driving them.

Kroger is working in partnership with Nuro to deliver groceries in Scottsdale, Arizona.

"Kroger customers are looking for new, convenient ways to feed their families and purchase the products they need quickly through services like pickup and delivery," said Yael Cosset, Kroger's chief digital officer. "Our autonomous delivery pilot with Nuro over the past few months continues to prove the benefit of the flexible and reliable technology. Through this exciting and innovative partnership, we are delivering a great customer experience and advancing Kroger's commitment to redefine the grocery experience by creating an ecosystem that offers our customers anything, anytime, and anywhere."

First unmanned delivery service available to the general public

Kroger is using Nuro’s R1 vehicle, which travels without a driver on public roads, transporting goods only. The R1 has been in development since 2016 and the partnership with Kroger was announced in June. Kroger had previously been using Prius vehicles, with vehicle operators to complete nearly 1,000 customer deliveries.

Source: Kroger

Reducing last mile costs

Orders are placed online or through the Fry’s Food Stores mobile app and customers choose same or next day delivery. There is no minimum order amount, although a flat delivery fee of $5.95 does apply. Customers receive a code when their order is placed, allowing to unlock the relevant compartment of the vehicle and retrieve their order.

Reducing costs in the last mile of delivery could provide significant cost savings for Kroger and there is potential for scaling this model further.