While we might not think of grocery warehousing space as being industry leading but companies like Ocado in the UK and Instacart in the USA and Canada, are pushing the boundaries of rapid fulfilment, whilst delivery structures like Ocado and Getir have changed warehousing operations to allow them to live up to their slogan of ‘groceries in minutes’. And while it’s true that Getir has been experiencing some financing problems recently and has pulled its operations in France and Spain, that doesn’t negate the impact that the new forms of grocery warehousing are having on omni-channel operating, facility upgrades and software development.
With 16% of grocery shopping now being undertaken online in the USA, and similar levels in the UK, new strategies are necessary to help selection and delivery processes – and given that 11% of these online grocery visits are to purchase one to three items, there’s been a substantial change in t
he way we’ve adjusted to grocery shopping online
Food, as part of in-store top-up shops has dropped by 6% since COVID, which bears out the way that we’ve changed our food shopping habits.
Leading food retailers are focusing on getting warehouses into the best position
for two reasons:
- reducing running costs which allows them to be more competitive against their rivals
- improving their capacity to offer faster (and often freer) delivery options to their customers.
Grocery retailers and their warehousing strategies
Instacart has lead the way in the US, with a ‘Carrot warehouse’ which offers delivery in a short a time as 15 minutes – and the retailer claims that this delivery offer can be customised to each customer from top-up shop to full basket and is being offered through warehousing operations that can be fully automated, or not automated at all. This approach is described as nano-fulfilment which means rapidly routing orders based on delivery addresses, so goods are picked, packed and delivered via couriers within hours. These nano-fulfilment centres tend to be much smaller, with warehouse space averaging around 10,000 feet and they are located in or close to major residential areas. Logistics aren’t just reactive in this model, but delivery demand is assessed by using analytics to optimise both goods and delivery demand based on previous peaks and troughs.
Ocado’s approach is different – they have hub and spoke e-commerce fulfilment centres in the UK and the USA. This has meant a 23 acre, four floor, centre based in Hertfordshire, the hub that currently serves five regional spokes from which Ocado aims to cover most of the UK. Ocado relies heavily on automation to achieve its goals. And the Hertfordshire site, once leading edge, is now in consultation about closure, having been superseded. In the past decade, Ocado’s new innovations have led to greater efficiency – new robotic systems at other Ocado sites are able to pick more than 200 grocery items an hour, compared to the 150 that Hertfordshire can pick. As a result, the 20% of Ocado operations that have been handled in Hertfordshire are expected to be transferred to spoke warehouses, removing the ‘hub’ element altogether.
Walmart, in the USA, has taken yet another approach – co-locating fulfilment centres alongside bricks and mortar stores. The fulfilment centres warehouse space uses autonomous carts to fill orders that range from fresh, to refrigerated and frozen groceries, which are delivered by cart to a workstation where a Walmart employees checks, packs and then delivers the order. This simplifies one element of the warehousing operation, by giving Walmart one lot of inbound deliveries to service both shoppers in person and online shoppers.
Challenges and rewards to adopting the ‘grocery warehouse’ approach
There are problems too. Issues facing online grocery shopping include the difficulty some retailers are experiencing in keeping good track of their inventory when online grocery shopping makes inroads into store shelving – UK supermarkets Tesco, Sainsbury and Waitrose all have to contend with balancing the demands of keeping physical shelves stocked for visiting customers and allowing their staff to empty shelves to meet the demands of their online ordering systems.
One way the balance is being struck is through the use of third party technology to help grocery warehouses respond faster whilst keeping costs low.
A major issue is the disagreement between customers and retailers on what ‘fast’ fulfilment actually means. For many people, the expectation is for same day or at very least next day shipping or delivery. But many retailers feel that a three to five day turnaround is stretching them to their limits. For grocery orders, 24-48 hours is a luxury – people want food the way they want their pizzas, within the hour. As a result, rising customer expectation is felt fast and hardest in the grocery sector, and warehousing has had to contend with and adapt to disruptive technologies to cope.
And these new warehousing solutions are not always popular, even with customers. When Coles, the second biggest supermarket chain in Australia, opened a new automated grocery warehouse in Queensland, the Prime Minister, Anthony Albanese, was on hand to laud the centre as ‘extraordinary’ and stating that it would create ‘ 320 permanent jobs, secure jobs here in Queensland.’ Others disagree – stating that this warehouse along with a second to be opened in New South Wales, ware part of a $1 billion (Aus) cost cutting exercise.
When both grocery warehouses are in operation, five existing warehouses will close, costing several thousand jobs. That $1 billion (Aus) investment is being match by a projected saving of the same amount over four years which already slashed retail roles. Savings on logistics have also been part of this process although the potential for autonomous delivery vehicles, which was part of the original vision, has not materialised. The automated Queensland warehouse will process 32 million items a week, and only 10% of those items will be handled by human beings – automated delivery into the warehouse through to automatic loading onto lorries for distribution to supermarkets will speed logistics without increasing the salary bill.