Reviewing 2019’s trends: Micro-fulfilment on a macro scale

Date : 17 December 2019

This is the third blog in a series in which we review how the supply chain trends we identified for 2019 have played out. This week, I’ll be looking at Micro-fulfilment on a macro scale.

Today’s fast-moving retail environment prompts grocers to be proactive in order to stay ahead of competitors and meet consumers’ soaring expectations. One way retailers have tackled this is through a relatively new but increasingly popular fulfilment model: Micro-fulfilment. But what is it exactly?

Micro-fulfilment refers to the idea of setting up small-scale warehouse facilities in accessible urban locations, closer to the end-consumer. This model has the potential to strengthen grocers’ ecommerce propositions.

Ecommerce’s total sales share is continuously increasing in every major market, albeit at varying pace, which puts the onus on grocers to reinvent their fulfilment processes, without breaking the bank. Let’s take a look at who’s been doing what.

Being hyper-local and tech-savvy

We’re starting to see a switch towards innovative solutions that leverage technology to achieve faster, seamless and efficient fulfilment, and rightly so. Nowadays, shoppers expect a fast, free (or low cost) and flexible delivery service. Micro-fulfilment is, therefore, seen as a novelty that has the potential to boost grocers’ fulfilment capabilities, whilst making use of existing local structures. Some examples of this include in-store picking, warerooms (micro-fulfilment facilities attached to existing stores), or stores that have been reconverted into mini-warehouses (referred to as dark stores).

In Australia, Woolworths has partnered with Takeoff Technologies, a provider of automated grocery fulfilment solutions based in Boston, US, to test its automated micro-fulfilment technology in three locations, a combination of supermarkets and liquor outlets. The aim of this move, according to the grocer, is to enhance its customers’ online experience and the speed at which orders are made available to them.

Similarly, Albertsons, one of the largest food and drug retailers in the US, has made use of Takeoff Technologies’ fulfilment solution by turning one of its existing stores into a micro-distribution centre, in a bid to seek the most cost-optimal solution that can maximise the efficiency of its online grocery delivery and pickup processes. Furthermore, it has recently announced the expansion of its partnership with the tech firm to further invest in additional micro-fulfilment centres.

Source: IGD Research

Still in the US, Sam’s club, Walmart’s membership-only warehouse club, has recently converted its fourth store into a fulfilment centre, as a means to provide the necessary infrastructure to be able to offer quicker deliveries, while Stop & Shop, an Ahold Delhaize company, is building a 12,000-square-foot fully automated fulfillment center in the backroom of a store in Windsor, Connecticut, for deliveries in the Hartford area. The retailer offers delivery through its online Peapod service.

What have we covered this year?

Ecommerce fulfilment models looked at the different approaches being used to pick online orders, from in-store and third-party in-store picking, to in-store micro-fulfilment centres and dark stores picking. The report highlighted the strengths and weaknesses of each strategy and their implications for businesses.

Furthermore, Fulfilment for the future explored the characteristics of fulfilment models that are required to adjust with continuously changing shopping habits, and what it means for companies.

Meanwhile, the US online grocery channel focused on the factors shaping the development and future prospects of the US online grocery channel, and outlined ecommerce models adopted by leading retailers, including the use of hyper-local, automated fulfilment solutions.

Still within the US grocery ecommerce channel, Is automated micro-fulfillment the future of grocery ecommerce? underlined the growing interest around automated micro-fulfilment, its latest developments, and how it can assist retailers in expanding the reach of their ecommerce propositions.

Final thoughts

Looking back on 2019, there is no doubt that various retailers have been experimenting with micro-fulfilment. This is indicative of their willingness to explore alternative, shorter routes to end-consumers. While some have leveraged cutting-edge technology, others have instead stuck with human labour to perform the picking process, although we’re starting to see a shift towards full automation.

Location, location, location. At the end of the day, this is what micro-fulfilment is about. Of course, other key aspects come into play whilst orchestrating a move to this particular model: the technology to be used, the format of the facility, the scale of implementation and, most importantly, the initial setup cost involved.

Despite the relatively early days of existing technology, we still expect to see consistent growth in the number of small, urban fulfilment facilities amongst grocery’s big names. The reason for this is that automated fulfilment solutions that have recently emerged can be easily implemented within small premises, hence maximising space utilisation, and making them a great fit for compact, urban fulfilment centres, which renders the scaling process more feasible.

Looking at the horizon, micro-fulfilment, driven by the growth of ecommerce, has the potential to become a profitable model, or at least a model that offsets the burden of a costly last mile delivery. In the medium-term, one could also expect new stores, located in urban areas, to be designed and built with the fulfilment component in mind (i.e. a dedicated space within the store premises).

I’m pretty sure there will be more to come on this topic, so watch this space!

Wassim El Attar

Supply Chain Analyst

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