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Grocers, It’s Time to Reclaim Your Territory Online

October 19, 2022

The results are in, and one thing is clear: grocery shoppers around the globe are buying more of their groceries online now more than ever before. McKinsey estimates that total eGrocery sales have grown by 60% since the start of the pandemic. Furthermore, a 2022 survey conducted by digital commerce platform, Chicory, showed that 72% of participants had purchased groceries online in the past 90 days. Within that group, 46% named convenience or time saved as their primary reason for ordering groceries online. This suggests what leaders at Takeoff Technologies have long suspected: that buying groceries online is not merely a temporary reaction to the pandemic, but rather a stickier change in shopping habits that will continue into the future.

And the changes do not stop there; as the online grocery landscape continues to evolve, so does the level of complexity that retailers have to contend with. Not only have the number of channels increased, but so has the difficulty of managing the shopper experience. Gone are the days when one volunteer shopper from every household makes their weekend trip to the grocery store with a paper list in hand. In the past, convenient store location, reasonable prices and wide selection were a retailer’s best (and only) tools to retain and serve those shoppers. But, increasingly, we live in a world devoid of the uniformity of the past, where multiple and various members of a household may be purchasing goods in various ways for various reasons at various times.  In-store, click and collect and home delivery are all on the table, presenting new opportunities to delight and retain customers, and conversely, to disappoint and lose customers.

Accustomed to an industry that has historically moved at glacial speeds, but now flows more like a river retailer might be facing an existential crisis.  With this rapid change in shopper behavior, one question remains: how can grocery retailers bridge the gap between increasingly complicated shopper demand and their ability to profitably meet expectations?

Many retailers report a lack of confidence in this area. According to a recent survey by FMI, only 8% of retailers report their ecommerce strategy as “very sophisticated” with 48% reporting “not very” or “not at all sophisticated.” 81% reported that they were continuing to experiment with their solution. With the number of options increasing seemingly daily, the answer is anything but clear. 

So what are retailers to do? In this paper, we will explore the various options available, as well as the advantages and disadvantages of each option. 

Outsourcing your ecommerce fulfillment

Third party platforms may seem like a tempting option — a “quick fix” to help you jump into the online grocery space now. There are undoubtedly benefits to this strategy: a high volume of orders, assistance to ease the burden of fulfillment during peak hours, and virtual POS swipes at existing stores, to name a few. But partnering with third party players often comes with a hidden cost. Third party platforms fog the relationship between you and your shopper, and cost you ownership of valuable first party customer data informing how retailers should best adjust to serve customers better into the future.  Additionally, a flood of third-party manual pickers in a retailers store tends to erode the shopping experience of customers who enjoy the traditional brick and mortar experience. 

Evidence has shown that customers may affiliate with 3P players more closely than the retailer banner, though some retailers, such as Albertsons and Kroger, are working on changing this. Albertsons has launched major branding campaigns focused on digital properties such as webpages, emails, apps, and targeted advertisements on other sites and platforms.

Similarly, the benefit of owning customer data should not be underestimated. More views on your site means more opportunities for promotions, ad revenue, and CPG incentives, while strengthening your overall brand by reminding customers that they are still shopping with their local store. 

Building your own manual fulfillment solution

You may be thinking owning the customer experience will help you, and it certainly will. But it doesn’t stop there. Manual picking, whether done in-store or in a dark warehouse, presents many challenges in and of itself. 

The fundamental issue comes down to one simple fact: fulfilling online orders on behalf of the customer (click and collect and home delivery) adds two essential costs that were previously done for free by the shopper: (1) picking and packing the order, and (2) delivering the order to the customer’s home.  Referring to the chart above, you can see how manual picking can erode profits. For an unlucky retailer (Retailer D), who does not reach many new customers online and instead sees many of their in-store customers shift to online shopping, manual fulfillment could eat a shocking 60% of their profits when online penetration reaches 25%. And it only gets worse from there — as online penetration increases, manual fulfillment will only become less sustainable.

In a world of small margins, this is a recipe to lose money on every order fulfilled outside of your standard in-store, brick and mortar experience.  And, in addition to the high picking cost, manual fulfillment typically means low productivity and low inventory accuracy, which leads to a higher rate of product substitutions. 

Additionally, the number of in-store pickers needed to meet growing online demand may soon outstrip the supply of workers. In a field that has been heavily impacted by changes to the labor market, this presents an insurmountable problem, with some retailers estimating that they would need to hire half a million pickers to meet current online demand — a feat that is simply unachievable in today’s market. 

Finally, manual shoppers on the store floor (whether they be your own employees or third party shoppers) run the risk of eroding the in-store experience for the omni-channel customer. Flooding the aisles with hordes of manual pickers, many of them staring at smartphones, absently steering massive trolleys overloaded with totes, creates a degraded shopping experience for your shoppers who enjoy perusing the aisles.

Hyper-local automation can help

Increasingly, retailers are looking to a new model that helps them reclaim their territory and reinstate ownership of their shopper experience: hyper-local automation and micro fulfillment. Micro fulfillment capabilities arm retailers with the fulfillment power they need to meet first party demand, with the added edge of lowering the cost-to-serve. Automated micro fulfillment solutions like Takeoff’s boast a 20x faster pick rate — in the same number of labor hours, the same employee can pick 20x more units using automation than they could roaming the aisles of a grocery store picking units manually. Takeoff has been exploring even faster fulfillment, allowing retailers to offer same-day orders with 1 hour click-to-deliver. Scaled down automated facilities close to the end customer is the only way to offer quick turnarounds like this, which allows retailers to stay competitive in the market and offer a superior customer experience.

Small scale local automated solutions are also capable of aggregating customer demand both from the retailer’s 1P online offering, but also from the 3P solutions outlined above.  By funneling the 3P and 1P order volumes to the hyper-local automated facility, the 3P drastically reduces the amount of labor they require to fulfill orders via manual picking, the retailer regains insight into customer behavior and data and the in-store experience is preserved.  Additionally, this allows the retailer to regain value from the 3Ps by providing a labor service and the overall system becomes so much more efficient that savings could be passed on to the end customer.  Solution partners like Takeoff Technologies are enabling this aggregation, allowing everyone in the chain to benefit and avoid sub-optimizations.

Micro fulfillment, unlike other forms of automated warehousing (namely large, centralized fulfillment centers), is small enough to place locally. Hyper-local fulfillment reduces the cost of last mile delivery, and makes customer pickup a viable, affordable option to end shoppers who live, on average, less than 5 miles away from their local grocery store. According to a survey by NRF, 75% of shoppers were planning to use BOPIS (buy online pickup in store), and 90% listed it as a convenient option. 

Not all micro fulfillment is created equal

Hyperlocal automation is certainly the best solution available to unlock profitable online grocery fulfillment, but automation alone is not enough. A pitfall many retailers can fall into is using a micro fulfillment solution that is not leveraged to its full potential. This would be akin to buying a luxury car but neglecting to change the oil. The important thing to understand is that hyperlocal automated micro fulfillment is not a grocery store, and it is not a warehouse — it is something completely new. And, as such, it requires a new approach. 

What are some of the challenges of micro fulfillment? Orders that are promised in less than 30 minutes leave very little room for error, smaller robotic systems lack redundancy, and there are best practices for assortment that will greatly impact the output of a micro fulfillment system, to name just a few. Proper orchestration can make or break a micro fulfillment solution. Automated micro fulfillment is not a “set and forget” robot, but rather, a complex system that, when leveraged well, has the potential to deliver an exceptional business case. 

Retailers need to ensure that they are partnering with a solution provider that understands the complexities of micro fulfillment, that has a track record of success, and who can provide solid recommendations to achieve solid outcomes. At Takeoff, an order of 25 items can be filled in approximately five minutes, with 99.9% uptime of the automated system, and the ability to fulfill $30M+ in GMV using our standard model. We have 25 live sites and counting, with some of the top grocery retailers around the world.

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