How Retailers Can Select The Optimal Micro-Fulfillment Solution

How Retailers Can Select The Optimal Micro-Fulfillment Solution

Micro-fulfillment, as a solution for automating online grocery fulfillment and fulfillment of other retail products closer to customers, is growing in popularity among retailers. Amazon, Walmart, H-E-B, Ahold Delhaize and FreshDirect are just a few of the retailers that have embraced the use of micro-fulfillment technology.

However, for every retailer that has made the decision to enter into an agreement with a micro-fulfillment company to install its technology, there are dozens of retailers still stuck on answering the questions: How do we choose the right solution? How do we know what’s best for us?

Strategy First

A mistake that I continue to see made by certain retailers is that they select a micro-fulfillment solution without first having a micro-fulfillment strategy. Bad idea.

I have personally provided consulting to several retailers that selected and installed micro-fulfillment solutions only to discover that no value of any kind was derived in doing so. I was contracted to assess the current state of their operations and identify the optimal future-state strategy, and in each case, the failure on the part of the retailers to identify the optimal strategy created a situation whereby the micro-fulfillment technology provided no value. The situation could have easily been avoided by following an effective methodology and by working with a consulting company.

Precision Distribution Consulting (PDC) is one of the few consulting firms skilled in analyzing the value of micro-fulfillment solutions to a retailer and then identifying the optimal strategy for introducing micro-fulfillment solutions into the retailer’s ecosystem of stores. Kearney, Capgemini, Accenture and Deloitte also provide consulting services related to micro-fulfillment, as do McKinsey, The Boston Consulting Group and Bain & Company. (I do not have business relationships with these companies, but I am a former consultant for Capgemini and Deloitte).

The methodologies utilized by these consulting companies vary, but some critical elements include:

• Assessing each micro-fulfillment solution and selecting the best solution based on the requirements of the retailer.

• Building a current-state supply chain and logistics network model.

• Conducting scenario analysis to evaluate the impact of introducing micro-fulfillment technology into the retail network.

• Assessing changes required to manage inventory replenishment to each micro-fulfillment solution.

• Performing a “what if?” analysis to identify the total number of micro-fulfillment centers and automated dark stores a retailer should install within its retail ecosystem.

• Identifying the optimal future-state supply chain model to maximize the value of each micro-fulfillment center within the network.

• Building a business case outlining savings across labor and increased productivity to justify the investment in micro-fulfillment.

As a consultant, I’ve found determining the optimal strategy is the first step in every project that I lead. However, Covid-19, the growth of Amazon, changing consumer behavior away from stores to e-commerce and increased retail bankruptcies has resulted in many retail executives wanting to move fast into micro-fulfillment. I disagree with such an approach.

When confronted with an executive pushing to select and install a micro-fulfillment solution without first understanding the optimal strategy, I remind them of the exchange between Alice and the Cheshire Cat from Alice in Wonderland:

“Would you tell me, please, which way I ought to go from here?” asked Alice.

“That depends a good deal on where you want to get to,” said the Cat.

“I don’t much care where,” said Alice.

“Then it doesn’t matter which way you go,” said the Cat.

“… so long as I get somewhere,” Alice added.

“Oh, you’re sure to do that,” said the Cat. “If you only walk long enough.”

Without a strategy, retailers have movement within their supply chains and operations but nothing more. Many people are in motion installing the selected micro-fulfillment solution, but the movement gets them nowhere, and the micro-fulfillment solution adds no value.

Selecting The Optimal Micro-Fulfillment Solution 

Once a retailer has identified the optimal micro-fulfillment strategy to meet its needs, the next step in the process is evaluating the different micro-fulfillment solutions available on the market.

The company I work for, PULSE Integration, has a business relationship with the micro-fulfillment company AutoStore. However, the purpose of this section isn’t to discuss AutoStore; it is to provide an overview of the leading micro-fulfillment solutions on the market and the key questions to consider during the selection process.

Whenever a retailer enters into an agreement with any micro-fulfillment company, the entire micro-fulfillment industry wins. I believe José Vicente Aguerrevere, Max Pedró and Rafael Pieretti V, founders of the company Takeoff, deserve credit for creating the modern-day micro-fulfillment industry. Other leading micro-fulfillment companies include Alert Innovation, Attabotics, Exotec, Dematic, Fabric and Tompkins Robotics.

Innovation is becoming increasingly important in the micro-fulfillment industry. For example, Takeoff is transitioning from a micro-fulfillment company to a software company capable of licensing its technology platform to retailers and micro-fulfillment companies to run all front-end and back-end operations related to online grocery ordering, fulfillment and operations.

At a high level, micro-fulfillment solutions are designed to do one thing: automate the process of fulfilling online grocery and e-commerce orders. Micro-fulfillment solutions are either shuttle-based or cube-based. There are positives and negatives of each.

A micro-fulfillment center can be installed inside every store to fulfill the curbside and online orders for a single store only. Micro-fulfillment centers can also be installed inside select store locations to fulfill curbside and online orders for many stores — a hub-and-spoke model. Again, there are pros and cons of each.

Retailers must first identify which model they prefer because that will determine the number of micro-fulfillment centers required to meet the demand for groceries from their customers. The model determines the strategy. My advice to all retailers is to assign someone from within their company who is experienced in micro-fulfillment to fairly evaluate all micro-fulfillment options or to partner with a third party that can lead the process.

There is no one-size-fits-all approach when selecting a micro-fulfillment solution.

Read the full article in Forbes

What Is The Best Micro-fulfillment Solution On The Market?

What Is The Best Micro-fulfillment Solution On The Market?

I recently hosted two webinars on the topic of micro-fulfillment centers (MFC). You can download and watch the webinars here and here.

Based on the size of the audience for each webinar and the number of questions asked by audience members, the topic of micro-fulfillment is growing in popularity. The question I am asked the most whenever I host a webinar or when I write an article on the topic of micro-fulfillment is this: What is the best micro-fulfillment solution on the market?

I will attempt to answer the question in this article.

I am also frequently asked: What are the biggest mistakes companies make when assessing and selecting a micro-fulfillment solution?

Based on my experience and discussions with companies that have gone through the search process for a micro-fulfillment solution, I believe the following are the biggest mistakes that are made:

  1. Companies fail to understand that micro-fulfillment isn’t just robotics they can purchase and install, micro-fulfillment is a strategy that can provide a competitive advantage. I always recommend that companies should identify their optimal micro-fulfillment strategy before they begin the process of selecting for micro-fulfillment automation. PULSE provides consulting on selecting the optimal MFC along with installation and life-time service. (Precision Distribution Consulting is a company that can help you identify your micro-fulfillment needs along with MWPVL International, founded by Marc Wulfraat. I owe a special thanks to Marc as I leverage some of his data in this article).
  2. Companies don’t invite all the recognized leaders in micro-fulfillment to take part in their RFP process. I can find no legitimate reason for not inviting all MFC companies to demo their hardware and software and submit a proposal. The established leaders in micro-fulfillment who should always be invited to participate in an RFP are: AutoStore, Takeoff, Fabric, Alert Innovation, Dematic, Attabotics, Geek +, OPEX, Vanderlande, Intelligrated and Exotec.
  3. Companies continue to allow inexperienced team members to lead the search for a micro-fulfillment solution. Having prior work experience at Amazon, Walmart, eBay, Google, Microsoft, Tesla or any number of other companies, doesn’t make anyone an expert in micro-fulfillment. Having prior experience in fulfillment or supply chain management doesn’t make anyone an expert in micro-fulfillment. Micro-fulfillment requires a specific set of skills and knowledge.

For the record, any company that doesn’t evaluate all the leading micro-fulfillment solutions on the market is making a mistake. Any company that allows inexperienced individuals to lead the search for a micro-fulfillment solution is making a mistake. What’s one of the signs indicating that a team leading the search for a micro-fulfillment solution are inexperienced and unqualified? Not inviting all MFC companies on the market to take part in a micro-fulfillment RFP.

The only exception to the rule of evaluating all the leading MFC companies is if Marc Wulfraat, PULSE, Precision Distribution Consulting, or other consultants are leading the search and selection for an MFC and they determine not to invite certain MFC providers to participate in an RFI or RFP.

Before I continue, I must point out that the future of retail and the future of business is robotics and technology.

Although the topic of this article is micro-fulfillment, I encourage all companies interested in micro-fulfillment to stop asking, “What’s the best micro-fulfillment solution on the market?” and instead ask, “What is the optimal robotics and technology strategy that we can leverage across our ecosystem to reduce costs and complexity, increase customer experience, enable growth and create a competitive advantage?”

See the difference?

The Missing Piece of the Puzzle

I embraced the value of micro-fulfillment in 2009 after completing a Master’s in Supply Chain Management at Penn State University. In 2013, I completed my third masters, a Master’s of Science in Merchandising. The degrees triggered a desire inside me to research the global retail industry. After months of research, I became convinced of the value of micro-fulfillment, and I designed one of the first micro-fulfillment centers. You can read about it in this article.

I also discovered the missing piece of the puzzle when it comes to micro-fulfillment: hardware automation is just part of the equation. In fact, I believe the easiest aspect of micro-fulfillment is getting the hardware to work assuming a retailer hires a qualified system integrator like PULSE Integration to install the MFC.

The biggest challenge in micro-fulfillment is getting the business case to work, meaning reducing the cost to serve (the cost to fulfill and deliver orders). Reducing cost to serve depends on optimizing the supply chain, product assortment mix, and labor planning. Automation isn’t enough.

Retailers that install MFCs without understanding the need for applying science across their supply chains and store operations to maximize the value of MFCs will achieve little to no ROI. Precision Distribution Consulting, PULSE Integration, and other consulting firms and system integrators can provide the required expertise to ensure maximum ROI is achieved.

A Crack in the Dam 

I am often asked why more retailers haven’t embraced micro-fulfillment? The reason is this: traditional retailers won’t lead and the industry responds to fear. For example, when Amazon acquired Whole Foods, grocery executives were convinced that Amazon was going to steal their market share in a matter of months. To prevent this from happening, executives contracted Instacart to provide online grocery fulfillment and delivery. Amazon hasn’t taken anyone’s market share. Yet. Many retail executives are now looking for ways to end their relationship with Instacart with micro-fulfillment being a possible solution.

Amazon and Walmart haven’t embraced micro-fulfillment as the right solution to meet their needs given the failures of their current micro-fulfillment pilots. Why did the pilots fail? Because neither Walmart or Amazon selected the best solutions on the market. Walmart and Amazon also don’t have experienced experts in micro-fulfillment, store operations and supply chain management leading the teams testing micro-fulfillment. In addition, Amazon and Walmart don’t have a strategy for micro-fulfillment, they’re only piloting micro-fulfillment. I believe this is a critical mistake.

I’m encouraged that Amazon and Walmart will quickly change their opinion about micro-fulfillment based on new pilots that will soon be underway. For example, I expect to see Amazon open a 20,000 square feet MFC fairly soon either inside one of their supermarkets and/or at an offsite dark store. Based on discussions with Amazon resources, the consensus is that the mistakes of the past are behind them and recent personnel changes has closed the gap in much needed skills and experience.

Amazon will drive other retailers and the retail industry to embrace micro-fulfillment and the increased use of robotics.

Walmart has also made changes to their MFC program, and I’m confident it will help push Walmart in the right direction. As the largest retailer in the U.S., Walmart should also be the leader in using micro-fulfillment centers throughout its retail ecosystem. I have recommended to Walmart to pilot a MFC from AutoStore, and to compare the results against the operational performance of the MFC Walmart has installed from Alert Innovation. Piloting a MFC from Attabotics and Exotec should also be explored.

I believe the real ‘game changer’ related to micro-fulfillment is the fact that H-E-B, arguably the best grocery retailer in the U.S., recently selected AutoStore to provide the company with multiple MFCs. I believe this is the crack in the dam of resistance that will eventually become a raging torrent of interest in micro-fulfillment by grocery and other retailers not wanting to be left behind.

H-E-B’s decision to select AutoStore makes them the leader in micro-fulfillment among grocery retailers. I anticipate Albertsons, Ahold-Delhaize, Kroger, Publix, Giant Eagle, Whole Foods, Target and other grocery retailers will accelerate their interest in micro-fulfillment.

This Forbes article that I wrote dives deeper into the need for grocery retailers to embrace micro-fulfillment.

My Methodology 

Ranking the micro-fulfillment players is difficult but I believe my methodology is fair.

On one end of the spectrum exists traditional shuttle and AS/RS companies like Dematic, Fabric, KNAPP, Vanderlande and Honeywell Intelligrated. The systems utilized by these companies offer good, not great, reliability but their architecture is far from ideal for a small MFC. Specifically, there are too many single points of failure, and the technology is incredibly expensive to maintain given so many moving pieces. The technology used in these systems was meant for large warehouses and fulfillment centers, and scaling the technology down for use in micro-fulfillment centers didn’t produce the best results.

On the other end of the spectrum exists the emerging 3D technology players like Attabotics, Alert Innovation, and Exotec. The systems offered by these companies have great architecture, low maintenance costs, and high density with no single point of failure. These systems also have low reliability due to so few of these solutions being sold, installed and operating. There is no easy way to build up reliability in technology other than installing many systems, identifying issues, and making improvements.

AutoStore was founded in 1996 and is a proven company with hundreds of satisfied customers. AutoStore currently has the best combination of reliability, architecture and density. AutoStore will have to continuously invest in its technology and software to maintain its position.

During my assessment of these solutions over the years, I’ve identified that all of them lack a very important feature: orchestration software to manage the end-to-end processes related to online ordering, fulfillment and delivery. The solutions also lack capabilities for integrating with or powering WEC, WMS, TMS and other software solutions required to fulfill and deliver orders, as well as perform other functions.

Software is the Achilles Heel of many MFC solutions.

I rank the MFC solutions below.

I’m confident that the list below will more than likely look much different in one year. There are many things taking place in the industry that will move some of the companies up or down on the list.

What follows is only my opinion. I do not work for any of the MFC companies I evaluate in this article. I encourage all companies interested in micro-fulfillment to perform their own due diligence before making any decisions.

First Place Goes to AutoStore 

AutoStore has been in business since 1996 and they have perfected the use of robotics, software and specialized materials and construction to build the most dependable and capable micro-fulfillment solution on the market. AutoStore has over 500 customers globally and the company enjoys a nearly 100% repeat business relationship with their customers.

AutoStore was recently selected by the grocery retailer H-E-B, to provide them with a large number of MFCs to be installed across their retail ecosystem. There continues to be a myth, driven by AutoStore’s competitors, that the AutoStore system can’t fulfill groceries. This is 100% untrue. AutoStore is the best solution for grocery retailers.

I recommend all grocery retailers interested in micro-fulfillment to contact Andrew Benzinger (andrew.benzinger@autostore.com) of AutoStore, and have a discussion with him about the AutoStore system in order to get the facts.

What makes AutoStore unique is that they perfected the use of the cube-based system that allows inventory to be stacked vertically in bins; this greatly reduces the amount of space required to install and operate an AutoStore. The AutoStore system can also be configured to fit in nearly any space. This webinar provides detailed information on the AutoStore system.

I also rank AutoStore in first place as a result of its commitment to continually look for ways to improve the efficiency of the AutoStore system. AutoStore recently announced the creation of Router, which utilizes sophisticated computer algorithms to continuously calculate and recalculate the most efficient path for robot movement in real-time – making each robot up to 40% more efficient.

Although I rank AutoStore in first place, I believe the company will face stiff competition in the coming years. I encourage AutoStore to ‘Think BIG’ at all times and explore making changes to their system that will increase the speed of fulfillment even more.

For example, I think it would be very interesting if AutoStore can create a system whereby robots pick from the top of the grid they ride on but also from the bottom of the grid. Such a system would allow for dual picking at all times from the top and bottom of each vertical stack of inventory. Robots would never have to access any bin that is deeper than half-way inside the cube at any time.

I’m also curious about the possibility of creating a combined shuttle-based and cube-based system that leverages the best of both systems for micro and traditional fulfillment needs.

Finally, I’m curious about the efficacy of a circular micro-fulfillment solution based on the motion of carousels. As the MFC carousels rotate, they would move totes into position for robots to retrieve the inventory.

Second Place Goes to Attabotics

Choosing Attabotics for second place was no easy task. I think Attabotics is technically the most advanced system on the market. That’s the good news. The bad news is that Attabotics is the most technically advanced system on the market. In other words, Attabotics works well once it is installed but installing the system can be difficult.

I will defend Attabotics by stating that when compared to other MFC solutions, I don’t believe Attabotics deserves the criticism it has received by some analysts and customers that I’ve spoken to.

Attabotics is most notable for its “3D” storage system, with wheeled carts capable of moving on an X, Y, or Z axis. I can attest to the fact that Attabotics is a technical marvel.

Attabotics raised an additional $50M in Series C funding in August, and the company is positioned well for future growth and continued development of its system. Attabotics has deployed their system in six locations across North America at companies in the food, B2B and retail sectors. Nordstrom is a client of Attabotics.

Companies that don’t invite Attabotics to participate in their micro-fulfillment RFP process are making a big mistake.

I also want to recognize the CEO/CTO of Attabotics, Scott Gravelle. Scott Thinks BIG and he is willing to question everything. This is a TED talk by Scott.

I refer to Attabotics as the Tesla of micro-fulfillment technology platforms. Like Tesla, Attabotics is encountering several operational challenges. My sincere hope is that Attabotics does whatever is necessary to eliminate the issues and maximize growth. I’m confident by early 2021, Attabotics will be firing on all cylinders.

Third Place Goes to Alert Innovation

I’m a fan of Alert Innovation for many reasons. Among them, founder John Lert has created one of the most unique micro-fulfillment powered store concepts in existence, the Novastore. I created a similar design in 2013, and people have contacted me over the years to complain that John stole my design. This is false. John and I independently came up with a similar concept at nearly the same time. I can assure everyone that John’s design is his own. I also believe John’s design is better than the concept I created.

Alert Innovation has secured Walmart as a customer, and an MFC has been installed inside a Walmart Supercenter located in Salem, New Hampshire. This is a link to the case study.

Developed specially for Walmart by startup Alert Innovation, Alphabot helps to enable quicker, more efficient order picking. The system operates inside a 20,000-square-foot warehouse-style space, using autonomous carts to retrieve ambient, refrigerated and frozen items ordered for online grocery. After it retrieves them, Alphabot delivers the products to a workstation, where a Walmart associate checks, bags and delivers the final order.

The e-Grocery Micro-Fulfillment Center design by Alert Innovation is another example of an MFC company creating a system that is highly advanced technologically. I think highly of the Alert Innovation system.

The jury is still out on Alert Innovation due to the small number of customers the company has. Another issue faced by the company is that Walmart invested in Alert Innovation, and Walmart has restricted the company from doing business with the leading grocery retailers. Alert Innovation’s growth is dependent upon Walmart. Note to Alert Innovation: End the relationship with Walmart unless they’re willing to acquire you.

My advice to Alert Innovation is to approach Instacart about building Instacart branded Novastores in strategic locations, and opening Alphabot-powered micro-fulfillment centers across the USA to give Instacart the ability to fulfill online grocery orders. Instacart would also have the option to become an online grocery retailer with the most advanced physical grocery stores (Novastores) in the world.

Acquiring TakeOff or merging with Takeoff is worth evaluating.

Fourth Place Goes to Exotec

Without a doubt, my fourth place pick, Exotec, offers one of the most interesting and unique solutions on the market. This video does a great job of explaining the Exotec system.

Exotec is growing in popularity; the company just raised $90M. The capital has positioned Exotec for explosive growth.

Although the Exotec robots are first-class in terms of quality and capabilities, what I really like about the Exotec system is their logistics software that coordinates the movements of all the robots.

Exotec is a France-based company (all robots are manufactured in Lille, France) but there are now Exotec teams in Atlanta and Tokyo, selling the Exotec solution to customers. The company currently has 14 running systems around the world. Clients include Leclerc, Cdiscount, Uniqlo and Carrefour.

Although I’m not a fan of shuttle-based systems, I like the system from Exotec and I think its a quality system.

And like Attabotics and Alert Innovation, companies should invite Exotec to participate in their micro-fulfillment RFP process.

Fifth Place Goes to Fabric

CommonSense Robotics was founded in Israel by Elram Goren, Ori Avraham and Shay Cohen in 2015. I was contacted by individuals who worked for CommonSense Robotics when the company was founded asking for my advice on different topics. I was happy to share my opinion.

CommonSense Robotics changed its name to Fabric in 2019.

I like Fabric because they offer multiple options for customers to leverage their technology. Companies can purchase or lease the Fabric platform and have it installed inside their stores or in warehouses, or companies can place their products inside micro-fulfillment centers owned and operated by Fabric. The latter model is similar to a concept I created that I call Micro-fulfillment as a Service (MaaS).

Fabric has raised $136M and is seeking $50M in additional funding according to sources. Fabric’s executive team made the right decision to secure additional funding lest they run out of cash. A startup can easily burn through $136M in as little as 12 months.

I’m not concerned about Fabric wanting to raise additional capital, I’m concerned that in my opinion, Fabric’s shuttle-based system is one of the most basic on the market. For example, this is a link to the a video that explains the Fabric system, and this is a link to the Exotec system.

Notice anything? Both solutions are very similar but what solution appears to have the better design, robots and software? Based on my unscientific poll that I’ve conducted multiple times, individuals who watch the Fabric and Exotec systems in action overwhelmingly select Exotec.

I believe Fabric should make several design changes to their solution. Specifically, I recommend that the Fabric solution become more like the Exotec platform. Fabric has a solid team of engineers and I’m confident that if given direction to improve the design and functionality of the Fabric solution, they can do so. This isn’t the option I prefer.

I’m also concerned about penchant for several individuals who work for Fabric, to use hyperbole when speaking about the company and its future. For example, Steve Hornyak, Fabric’s Chief Commercial Officer, made the following quote in a July 28, 2020, Grocery Dive article titled, FreshDirect, Fabric to launch micro-fulfillment powered grocery delivery in DC-area:

Hornyak said Fabric expects to have 10 MFCs running by the end of this year and between 50 and 100 by the end of next year. Within five years, he anticipates the company will be running as many as 1,000 MFCs.

I appreciate Hornyak being a cheerleader for Fabric, but I believe it’s nearly impossible for anything Hornyak claimed in the quote to become a reality. I see no reason, none, for Hornyak, or anyone else at Fabric, to wildy exaggerate the future of the company. It is very dangerous to create a false perception when it comes to predicting the growth of any company. (If there was an ‘Entertainer of the Year’ award, I would give it to Steve; he is truly one of the funniest people working in the industry).

Due to the number of people who speak to me about Fabric, I feel I have no choice but to offer my unbiased advice free of charge to the company.

The first thing Fabric should do is hire a CEO with the understanding that he/she has complete authority over the strategy and direction of the company. The founders of the company should have no input, zero. I’ve stated many times at conferences and during webinars that I believe most founders make terrible executives. I have nothing personal against the founders of Fabric. However, in my opinion, I believe mistakes have been made that should have been avoided.

Let me be clear, if I ran Fabric, I would make many, many changes starting with the corporate strategy.

Second, my preferred option is for Fabric to evaluate the available MFC solutions that are on the market and seek out a partnership. I strongly recommend Fabric to partner with Geek + or Addverb, and eventually end production of Fabric’s shuttle system. Fabric is at a disadvantage when it comes to the cost of their solution because they sell so few. Without volume, Fabric is unable to negotiate favorable terms to reduce their manufacturing costs. A partnership with Geek + or Addverb would provide many benefits to Fabric’s current and future customers.

Third, if Fabric doesn’t enter into a partnership with Geek +, they should evaluate selling the company. Fabric is a good company with a good MFC solution. I believe Fabric is an ideal acquisition target for several retailers and other companies.

I want Fabric to succeed. Please do not interpret any of my comments as being malicious towards Fabric, I can assure you no malice is intended.

I’m frustrated that Fabric isn’t the company I know it can become. I’m frustrated that Fabric isn’t living up to its potential even with so many talented individuals in the company. Hubris can kill careers, and hubris can kill companies. Regardless of the amount of capital raised, survival is not assured for Fabric.

My final piece of advice is this: Fabric should contact the consulting firm Capgemini, and hire them to lead an Accelerated Solutions Environment (ASE) engagement. I believe it is exactly what Fabric needs the most in my opinion.

If I didn’t want the best for Fabric, I wouldn’t offer my advice.

I recommend all companies interested in micro-fulfillment to invite Fabric to participate in their micro-fulfillment RFP process.

Sixth Place Goes to Dematic

Dematic is a 201-year-old company yet its micro-fulfillment solution didn’t become commercially available until 2019.

Based on the information I received, it appears that Dematic only has one customer for its MFC solution, the grocery retailer, Meijer. The fact that Dematic only has one customer isn’t a concern to me.

What does concern me is that in my opinion, Dematic’s MFC hardware and software solution are simply too basic for any retailer to consider. This video of the solution speaks volumes.

Dematic is a company that designs, builds and implements solutions for warehouses, distribution centers and production facilities. When interest in micro-fulfillment began to grow, Dematic made the decision to apply technology they leverage on full-scale, large fulfillment and warehouse projects to create a Dematic micro-fulfillment solution. On the surface, this appears to be a wise decision. However, the facts prove otherwise.

I believe Dematic used brute force to create their version of a micro-fulfillment system including software to run the MFC. However, the Dematic MFC isn’t competitive when compared to the other MFCs on the market.

I recommend that Dematic should disband their MFC team and exit the MFC market altogether. In turn, Dematic should focus on serving large customers that require hardware but not software. For example, Dematic has a relationship with Amazon and Walmart. Both of these companies have their own software solutions and don’t require software from Dematic. However, I believe Dematic can be successful in customizing MFC solutions to meet the needs of Amazon, Walmart and other large accounts.

Dematic may not appreciate my opinion, but it is better for the company to exit the MFC space early vs. losing millions of dollars trying to sell a solution that can’t compete with the other MFC solutions I’ve evaluated. I also want to make it clear that Dematic exiting the micro-fulfillment space in no way negatively impacts revenue or the potential for future growth. Dematic is a fabulous company with an incredible reputation.

If Dematic wants to be successful in micro-fulfillment, an option they may want to consider is acquiring Fabric and rebranding the company to Dematic Micro-Fulfillment Solutions. This is not something I would pursue if I ran Dematic.

And Seventh Place Goes to…

I’m sure individuals knowledgeable about the micro-fulfillment industry were expecting to see the name of ‘Takeoff’ listed in seventh place. However, there is no seventh place for this reason – I no longer consider Takeoff to be a MFC company. Instead, I believe Takeoff is the next Ocado. Here’s why.

I’ve watched Takeoff develop as a company since it was founded in 2016 by Jose Vicente Aguerrevere, Rafael Pieretti V, and Max Pedro. Jose and Max lead the company today but Rafael chose a career in medicine. I provided free consulting to the founder early in the history of the company which is how I met Max and Jose.

For the record, I credit Max and Jose with being the individuals who created the micro-fulfillment industry. I also believe Jose and Max are among the most skilled executives in the industry and I believe they are the ideal team to lead Takeoff for years to come.

Takeoff has operated as a traditional MFC company since it was founded and it uses a solution form the company KNAPP. Takeoff has many MFC customers and the company is the most well-known brand out of all the MFC companies on the market. The challenge for Takeoff is that AutoStore, Attabotics, Alert Innovation, and Exotec offer better micro-fulfillment solutions. Fabric and Takeoff are very similar in terms of the capabilities of their systems.

For several years, I’ve spoken about Takeoff on webinars and I’ve written articles where I’ve mentioned the company. Most recently, I’ve begun to offer my opinion on what I believe Takeoff will do in terms of its corporate strategy. Among the ideas I’ve shared is that Takeoff could choose to enter into a partnership with Exotec or Attabotics, and use their solution for micro-fulfillment and focus on using KNAPP for larger warehouse and fulfillment projects.

I’ve stated that Takeoff and Fabric could merge.

The problem I kept encountering is that no matter how many times I heard myself share my opinion about Takeoff, I didn’t believe what I was saying was correct. It’s certainly plausible that Takeoff could partner with Exotec or Attabotics. It’s possible that Takeoff and Fabric could merge. However, none of those options are big ideas. It’s just a change in hardware while maintaining the same strategy. Why would two of the brightest leaders in micro-fulfillment maintain the status quo?

And then it hit me. They wouldn’t maintain the status quo, and they wouldn’t think small, they would THINK BIG.

During this period of evaluating potential options for Takeoff to follow, I read an article about the fact that the British retailer Ocado is worth an estimated $20B even though the company only sells 1.7% of the groceries in the U.K. By comparison, Tesco, the largest grocery retailer in the U.K. with a market share of 27%, is only worth $21.5B. How could that be? How could Ocado be nearly as valuable as Tesco while only controlling 1.7% market share? What makes Ocado so valuable?

Answer: Software and technology. Ocado isn’t a robotics company, they’re a software and technology platform company. Big difference.

In my opinion, I believe 2021 is going to be a BIG year for Takeoff.

I anticipate that Takeoff is going to transition from being an MFC company to becoming a technology company that licenses their platform to MFC companies and their customers. Takeoff has created a best in class platform capable of performing nearly every task associated with online grocery ordering and fulfillment.

As I stated earlier in this article, software is the Achilles Heel of many MFC companies. Software is also the Achilles Heel of many retailers when it comes to online grocery ordering, fulfillment and delivery. Takeoff is an ideal postion to leverage their platform to fill this gap.

Although I’m confident Takeoff can license their software, I’m convinced they will struggle to entice MFC companies and their customers to sign an agreement. Why? Because Takeoff is an MFC company that has a relationship with KNAPP. Takeoff is viewed as being a competitor.

To shift the paradigm, I’m confident that Takeoff will become hardware agnostic. Any MFC company, regardless of their hardware, can sign an agreement with Takeoff to provide and manage all technology requirements related to online grocery ordering, fulfillment and delivery. Becoming a technology company changes Takeoff from being a competitor to an ally.

Until Takeoff publicly announces they’re moving away from a focus on hardware and instead are focused exclusively on marketing their technology platform, I recommend all companies interested in micro-fulfillment to invite Takeoff to participate in their micro-fulfillment RFP process.

Honorable Mention

Geek +

I have to mention Geek + in this article even though the company isn’t considered a competitor in micro-fulfillment by most retail analysts reports that I’ve read. I disagree. I believe Geek + is destined to become one of the largest fulfillment, micro-fulfillment and robotics companies in the U.S. and the world.

Geek + is a Beijing, China-based startup that makes warehouse fulfillment robots similar to those of Amazon’s Kiva. To date, Geek + has raised nearly $400M in funding. The startup has 10,000 robots deployed worldwide, and the company has 300 active customers in 20 countries.

I have worked with Geek + and I think their robots, software and other technologies are second to none. I strongly recommend the company and its products.

In regards to micro-fulfillment, the company has created The Geek+ RoboShuttle, a bin-to-person picking solution that can achieve high-density storage by using the innovative Geek+ C200 and narrow aisle design, while maintaining high efficiency. The standard 9-meters warehouse can store 18-layer 3.50m high-cargo boxes and 24-layer 2.5m high-cargo boxes, fully utilizing the warehouse space.

The Geek+ RoboShuttle™ system was certified as “Best of Intralogistics 2020” by the world-renowned IFOY award, one of the industry’s most prestigious recognitions. Compared with the traditional shuttle system, RoboShuttle has higher flexibility, efficiency and return-on-investment.

It is conceivable that within the next two to three years, Geek + may be in the top three in terms of companies that have sold the most micro-fulfillment solutions.

The advantage Geek + has is that they’re a technology company that specializes in smart logistics. They’re not a company that specializes only in micro-fulfillment. Their use of innovative robotics and artificial technologies is arguably the most advanced of nearly every company I’ve listed in this article.

An interesting option for Geek + to consider is acquiring Fabric.

My advice to all companies seeking fulfillment and micro-fulfillment solutions is to invite Geek + to participate in all related RFPs.

Addverb Technologies 

India-based Addverb is by far one of the most interesting robotics companies on the market. Addverb is focused on intra-logistics automation utilizing what they call a 4D approach: Discover, Design, Deliver and Dedicated Support. Based on my analysis, I believe Addverb’s hardware and software are among the best on the market. The challenge is that Addverb hasn’t completed full-scale implementations of their technology and software at a lot of companies so its hard to verify the effectiveness of their solutions.

I think very highly of Addverb’s micro-fulfillment technology; especially the software being utilized to manage MFCs. Addverb has created one of the best videos describing micro-fulfillment and how they view the industry. I have no doubt that Addverb will become one of the leading MFC companies.

I believe partnering with Fabric or acquiring Fabric is something Addverb should explore.

OPEX Corporation

Micro-fulfillment solutions come in many different shapes and sizes. Two of the more interesting solutions on the market come from the OPEX Corporation.

Perfect Pick is a self-contained, standalone robotic goods-to-person order fulfillment system, that can easily be expanded by adding modules or more aisles. Additional iBots can also be added to increase productivity and speed of fulfillment.

Sure Sort has changed the way companies handle small items, particularly as it relates to parcel sorting, multi-line orders, and reverse logistics. The Sure Sort solution reduces the number of excessive touches associated with existing sorters. Regardless of shape, packaging, or orientation, Sure Sort sorter provides a better way to sort small items more accurately and efficiently. Single items of a variety of shapes and sizes and parcels up to 5 lbs. can be delivered to their designated sort location at rates up to 2,400 items per hour.

This video demonstrates how both systems can be leveraged together to provide a micro-fulfillment solution.

OPEX offers additional solutions for large-scale fulfillment needs as well.

Vanderlande

Although not as recognizable as the other MFC companies on the list, Vanderlande offers a unique solution for micro-fulfillment referred to as HOMEPICK. This is a link to a video that explains the HOMEPICK online grocery fulfillment model.

The solution is powered by ADAPTO which is a 3D, shuttle-based automated storage and retrieval system (AS/RS) with built-in sorting and sequencing capabilities. It offers unrivalled flexibility and helps companies to adapt to changing market dynamics.

Based on what I have researched about HOMEPICK, I believe the system can hold its own against the majority of companies I’ve listed. However, the solution is fairly new so more time is required to accurately judge the system.

Honeywell Intelligrated

Intelligrated has entered the e-commerce game through its micro-fulfillment solution that combines AS/RS shuttle technology, goods-to-person (GTP) order consolidation, autonomous mobile robots (AMRs), and high-density cube storage for flexible high-velocity small-footprint automation. Designed for mass retail and food retail applications, Intelligrated’s MFCs can store from 5,000 to 15,000 SKUs within a 6,000 to 20,000 sq. ft. footprint — and can include any combination of ambient and refrigerated storage of both dry and chilled goods.

Intelligrated offers additional systems such as Mobile Picking Carts, Goods to Person Put Walls, Sortation Conveyors to Put Walls, Zone Routing Pick-and-pass and Sortation, and Tilt-tray and Cross-belt Sortation Conveyors for High Volumes.

More time is required to accurately measure the reliability and value of Intelligrated’s solutions.

Unknown Unknowns 

I anticipate that there will be consolidation among several MFC companies and it’s certainly plausible that one or more of the companies I mention in this article will go out of business.

We must also recognize that any number of companies can make a big move that will disrupt the entire micro-fulfillment industry. For example, Ocado has signed an agreement with the company Myrmex which may lead to Ocado investing heavily in a new form of micro-fulfillment. There is also the possibility that Ocado could acquire AutoStore and run AutoStore as a separate company while imbedding AutoStore’s technology throughout the Ocado platform. Ocado could potentially acquire Takeoff.

Autostore may choose to become another Ocado. Ocado is a valuable company because of their platform, not because of their robots. AutoStore has the hardware but it lacks the platform to become another Ocado. AutoStore can solve this dilemma by acquiring Takeoff or some other company with the required platform.

Why become another Ocado? Let’s take a look at their public numbers: Ocado charges 4-5% of sales (GMV) for a site that does around $250M GMV. That equates to $10M to $12.5M per year with 40% net margin after capex lease, site maintenance, software hosting and maintenance and training/supervision. Total automation hardware investment per site is around $50M with roughly 20% margin.

If we do the math, is it better to earn $5M per year per site, or earn $10M one time selling technology? The former is an Ocado example and the latter is an example of the estimated revenue generated by Autostore.

This is why there is 10x value gap between both companies (software as a service companies trade at around 35x EBITDA, and capex hardware companies trade at 12x EBITDA). Ocado, even though they’re one of the smallest automation players in the industry, is worth twice all other automation companies combined.

Finally, there is the case of Louis Borders and his company, Home Delivery Service. Based on my research of HDS and an interview I conducted with Louis, I believe Home Delivery Service has incredible potential to disrupt the entire MFC industry, as well as disrupt the $800B grocery industry. This is a link to a video about the company. What I like about HDS is their use of technology and software to reimagine the online grocery experience.

Conclusion

I anticipate that more changes will take place at grocery and other retailers between 2020 and 2030, than took place between 1900 and 2020. All retailers need to ask and answer this question: What’s our micro-fulfillment strategy?

Additional questions that must be asked are what will Google do when it comes to retail? Will Amazon acquire Costco, Kohl’s or Target? Will Walmart acquire Shopify? Will Alibaba make a big move and enter the U.S. market by acquiring a retailer? Will Ahold-Delhaize and Albertsons merge? Will Target and Kroger merge? Retailers must embrace robotics and technology to give them an edge in terms of performance and meeting customer demand.

Grocery retailers will continue to lose up to $25 on every online order they fulfill. Increased volume does nothing to reduce online fulfillment costs.

Grocery retailers must be prepared for the possibility that online penetration will increase to between 20% to 25% by 2025. This means grocery retailers will see a significant drop in customers inside their stores. Grocery retailers will also experience increased costs and a significant drop in earnings. Grocery retailers need to take steps to prepare for this eventuality. Micro-fulfillment is a must-have to automate online grocery fulfillment, along with a real estate strategy to reduce the size and number of stores based on consumer behavior and operational needs.

I want to leave executives, board members, and individuals tasked with selecting a micro-fulfillment solution with this reminder: Your careers and reputations are on the line when you select a micro-fulfillment solution. Do not, under any circumstances, fail to perform your due diligence when evaluating micro-fulfillment companies. Invite all the MFC companies I listed in this article to participate in your micro-fulfillment RFP process, and conduct a thorough evaluation of each.

Read more articles like this from PULSE’s Chief Marketing Officer, Brittain Ladd

This Is Why Whole Foods Is Failing

This Is Why Whole Foods Is Failing

According to this Bloomberg article, trips to Whole Foods in September were down 25% from a year earlier. This is alarming when compared to Kroger, Walmart and other grocery retailers that have seen massive increases in store traffic and online sales primarily as a result of the pandemic. (Google the grocery industry and you will find a large number of articles on the topic of how the pandemic has significantly increased sales and online ordering of groceries).

Bloomberg also quoted Whole Foods customers and store managers pointing out the unpleasantness of shopping at Whole Foods stores due to crowding from Prime Shoppers fulfilling online orders, and customers trying to shop for the products they need. This is a bigger issue than the decrease in trips to Whole Foods.

Although it’s true that I am the first person to recommend to Amazon to acquire Whole Foods (I made the recommendation in this 2013 research paper), I was also the first person to write an article making it clear that acquiring Whole Foods could be Amazon’s ‘Bridge too Far‘.

So what’s the truth? Is Whole Foods failing? Is Amazon Fresh the future of Amazon’s grocery empire while Whole Foods becomes marginalized? I will answer these and other questions in this article.

John Mackey Loves Whole Foods…And That’s a Problem 

I like John Mackey as a person. I think he is a very kind and decent human being. However, I have been on the record since 2017 warning that Mackey is the last person who should be the CEO of Whole Foods if Amazon acquired the company.

When Amazon acquired Whole Foods in June 2017, I argued that Amazon should keep Mackey no longer than 3 to 6 months. Why? Because John Mackey loves Whole Foods. John Mackey created Whole Foods to fit his view of the world. And come hell or high water, John Mackey is going to protect Whole Foods from anyone who believes Whole Foods should change.

This interview that Mackey gave to Business Insider proves that I’m right.

The biggest mistake Amazon has made thus far when it comes to Whole Foods is allowing Mackey to stay on as CEO. I recommended to Amazon to hire Sergei Goncharov (I provided a list of several candidates) and place him at the helm of the company. John Mackey has stated publicly several times that he grew Whole Foods as large as possible and then the company began to fail. Mackey sold Whole Foods to Amazon because he had no alternatives. Sergei Goncharov in 2017 (or in 2020) is someone who would address the issues facing Whole Foods.

As long as Mackey remains CEO of Whole Foods, nothing major will change and Whole Foods will struggle to grow. One final comment – Mackey isn’t driving innovation at Whole Foods, he is protecting the status quo at all costs. Whole Foods is Mackey’s baby and no one is going to tell Mackey his baby is ugly.

Not Enough Hippies

When I evaluated which retailers Amazon should acquire, I selected Whole Foods because it had a fabulous reputation for selling the best fresh fruits, vegetables, meats and other perishable products. Whole Foods is also non-union and has stores nationwide. However, the big negative of Whole Foods, but a negative that could easily be corrected, was that Whole Foods doesn’t allow products with unnatural ingredients to be sold in their stores.

Selling organic products is fine but not if the goal is to acquire the retailer and grow the business. There simply aren’t enough hippies (as John Mackey has referred to himself and Whole Foods customer) interested in eating only natural foods. The solution? Introduce branded CPG products into the stores like Coke, Pepsi, salty snacks, and other in-demand products stocked on store shelves at traditional grocery retailers.

Whole Foods is not a one-stop shopping destination. Love organic produce but you also like to drink Coke and munch on Cheetos? You can buy the produce at Whole Foods, but the Coke and Cheetos will have to be purchased elsewhere.

My analysis indicated that less than 2% of Whole Foods customers would abandon the chain if CPG products were introduced into the stores. However, Whole Foods would attract a double-digit percentage increase in new customers.

Mackey, however, remains adamant – Whole Foods will never change its assortment. This is the primary reason why I believe Mackey should not be CEO. No matter what Whole Foods does in terms of innovation, it will not increase sales or attract new customers to the level it would if CPG branded products were available in the stores.

Instead of making the decision to hire a new CEO, Amazon retained Mackey guaranteeing that no substantive changes will ever be made. In other words, Amazon is the reason why Whole Foods isn’t thriving. None of the senior Amazon officials or their deputies assigned to oversee Whole Foods or work with Mackey’s team, are experts in grocery. Big mistake.

The Forlorn Hope 

SInce 2017 when Amazon acquired Whole Foods, I’ve shopped in over 50 Whole Foods stores in 12 different states. My worst fears about Amazon owning Whole Foods and John Mackey running the company have become a reality. Whole Foods isn’t a mess and the company isn’t broken but it does have severe issues that need to be corrected. (Yes, it’s true that Amazon plans in terms of a decade and they have only owned Whole Foods since June 2017. However, with no plans to replace Mackey, what will change at Whole Foods?)

The good news is that things can quickly improve with the right leadership and a strategy to accelerate operational improvements. What’s needed at Whole Foods is an intervention.

I can’t stress this enough, the majority of complaints I have received about Whole Foods is related to how crowded the stores are. The first thing that has to be addressed at Whole Foods is improving the customer experience by eliminating the crowding.

This can be done primarily by adopting the use of micro-fulfillment centers or what I refer to as Super Micro-fulfillment or Nano- fulfillment centers, inside Whole Foods stores to reengineer the process for fulfilling online orders and removing independent contractors from the aisles that are picking groceries to fulfill orders.

For example:

  • Massively accelerate the number of dark stores to fulfill online orders but automate the dark stores using technology from AutoStore or other micro-fulfillment companies
    • Let customers shop in the stores
    • Remove pickers from roaming aisles to fulfill online orders
  • Install super micro-fulfillment centers inside Whole Foods stores
    • The centers can range from 2,000 to 15,000 square feet
    • Inventory can be removed from inside Whole Foods stores and stored inside the fulfillment centers
    • There is no ‘one size, fits all’ approach to opening micro-fulfillment centers inside Whole Foods stores due to so many stores having different layouts, ceiling height and square footage

I’m convinced that Amazon is going to open a 20,000 square feet micro-fulfillment center inside an Amazon Fresh supermarket and/or at an offsite dark store. Amazon understands the value of micro-fulfillment. However, traditional micro-fulfillment solutions aren’t necessarily the best solution for use inside Whole Foods stores.

I expect to see Amazon work with any number of micro-fulfillment companies to come up with a better solution for leveraging technology to reduce the costs and complexity associated with fulfilling online Whole Foods orders, and increase customer experience.

Leveraging micro-fulfillment centers and automated dark stores will generate an immediate ROI for Amazon by automating the majority of steps required to fulfill online orders.

This is a must-have for Whole Foods to provide customers with a better shopping experience.

The Future of Whole Foods

Amazon will continue to invest heavily in growing it’s grocery business but will Whole Foods be a priority? No. Amazon has learned that Whole Foods in its current format is extremely limited in terms of growth potential. John Mackey opened Whole Foods stores nationwide and there is little need to open additional Whole Foods stores. The future of Amazon’s grocery empire will be the following:

  • Amazon will open Amazon Fresh stores inside select Kohl’s locations; I have recommended this since 2018 and recently an article appeared quoting individuals with knowledge of the matter that Kohl’s and Amazon have begun a pilot
    • Kohl’s operates 1,158 stores
    • It’s conceivable that Amazon can open an Amazon fresh store inside every Kohl’s
    • If the pilot is successful, I anticipate that Amazon will acquire Kohl’s
  • Amazon will continue to open different formats including supermarkets branded Amazon Fresh
  • Amazon can make additional acquisitions
    • Target remains at the top of my list
    • Amazon can open Amazon-branded stores or Whole Foods branded stores inside each Target
    • Amazon can acquire TakeOff, Fabric, Dematic, Alert Innovation, Exotec or any number of micro-fulfillment companies

The brutal truth about Whole Foods is this – the company isn’t strategic to Amazon long-term. As Amazon opens their own branded stores stocked with organic and branded CPG products, the value of Whole Foods decreases. Why? Because there aren’t enough hippies to shop at Whole Foods. (Amazon was right to acquire Whole Foods. It was not a strategic error. Where Amazon has made an error is allowing the status quo to remain).

If Amazon doesn’t insist that Whole Foods introduce CPG branded products, where will the growth come from? (I made the argument to Amazon that adding CPG products can be done fairly easy. Changing the name to Whole Foods + to indicate Whole Foods has increased the assortment of products they sell is also something that can easily be done).

I firmly believe that Whole Foods should morph into a fitness company capable of providing customized meal plans. Whole Foods should manufacture the highest quality line of supplements. Whole Foods should invest heavily in technology related to fitness and wellness. For example, why can’t Whole Foods be a competitor to Peloton? I think Whole Foods should acquire the bankrupt fitness chain, 24 Hour Fitness, and create an integrated health, fitness and nutrition ecosystem for their customers.

The Whole Foods I envision looks much different than the Whole Foods that exists today. John Mackey remaining CEO of Whole Foods doesn’t make sense to me. John Mackey running a fitness and nutrition company does. Whole Foods can be much bigger than a grocery retailer.

Amazon is running out of time. Organic products can be found in nearly every major grocery store chain and even at independent grocers. Kroger and Walmart have done a fabulous job increasing the number of organic products they sell. Whole Foods isn’t as needed or valuable as it used to be hence the need for Amazon to rethink Whole Foods operating model and assortment. All companies must evolve over time. Why should Whole Foods be any different?

Is is possible that one day Amazon could divest Whole Foods? Yes. Not likely as of the time I write this article but it is certainly plausible.

True story. In 2013, I reached out to Kroger and I informed them that I was writing a research paper on the topic of Amazon acquiring Whole Foods. I made the argument to Kroger that they should acquire Whole Foods as a way to balance their portfolio of banners, and deprive Amazon of a future acquisition target that could one day impact Kroger. Kroger instead chose to acquire Harris Teeter.

If Kroger had acquired Whole Foods, I wouldn’t have had to write this article.

As for Amazon, they would have been limited regarding who they could have acquired as there are few non-union retailers. My argument to Amazon was to acquire H-E-B if they didn’t want to acquire Whole Foods. H-E-B is arguably the best grocery retailer in the United States. They sell organics, private label brands, and branded CPG products.

H-E-B also recently entered into an agreement with AutoStore to provide them micro-fulfillment technology to automate fulfilling online grocery and curbside pickup orders. It’s amazing what a grocery retailer can do when it has a team of skilled executives who think big and embrace change. (I anticpate that Ahold-Delhaize will be the next grocery retailer to announce a partnership with AutoStore).

The issues facing Amazon aren’t insurmountable. What I question is the willingness of Amazon to take command and control over Whole Foods. Let me make it easy for Amazon: Hire Sergei Goncharov and allow him to utilize his global experience to take Whole Foods to the next level.

Was acquiring Whole Foods Amazon’s bridge too far? I believe we’ll know the answer in 2021.

 

Read more articles like this from PULSE’s Chief Marketing Officer Brittain Ladd

A Look At The Micro-Fulfillment Model And The Future Of Grocery Retail

A Look At The Micro-Fulfillment Model And The Future Of Grocery Retail

In an effort to more cost-effectively fulfill online grocery orders for its customers, Amazon has opened a “dark store,” which is more of a warehouse than a store. Located in Brooklyn, New York, Amazon’s dark store will be a good test of the concept to determine how big of a role the stores will play as the company accelerates investment in the grocery ecosystem.

Amazon is confronted with many of the same challenges as its grocery competitors, like Walmart, Kroger, Albertsons and Ahold Delhaize. Among the challenges is how to meet the increasing demand for online grocery ordering and delivery.

On the surface, fulfilling online grocery orders appears to be a fairly simple and straightforward process. It’s not. Consumers purchase a wide variety of products, resulting in a mixture of small, medium and large orders, ranging from a few products to 50 or more items.

Prior to Covid-19, 4.3% of grocery sales were online. Online grocery sales currently account for 10.2% of all grocery sales. The increased volume of orders, when combined with the large variance of products that need to be picked to fulfill each individual order, has significantly increased costs and complexity.

The Costs And Complexity Challenges

Unlike other industries where economies of scale decrease the cost per unit with increasing scale (volume of orders), the cost to fulfill online orders remains constant when using a store’s staff or third-party labor to fulfill an order. Based on my own research, and research from consulting firms that specialize in analyzing the grocery industry, the cost to pick, prepare and deliver an online grocery order is between $10 and $25, with most deliveries averaging $11 to $12.

If a grocery retailer fulfills and delivers one order at a cost of $20, it can be expected that fulfilling 1,000 orders using the same process will still cost $20 per order. I have argued since 2013 that the worst business model in existence is online grocery ordering and delivery in its current form, due to the fact retailers that provide online grocery ordering and delivery can lose up to $25 on every order they fulfill.

The process for fulfilling or “picking” orders is primarily manual. Store associates or third-party labor receive a list of orders to pick with an itemized list of each product desired by the customer. Like a team of ants, pickers push carts up and down store aisles, frantically searching and pulling items off of shelves. Because online orders are received hourly, the process only stops when a store closes.

As retailers have increased the number of pickers to fulfill online orders, shoppers inside the stores are more likely to experience crowded aisles and an increase of out-of-stock items.

I believe Amazon and other grocery retailers likely understand that the current process for fulfilling online orders is broken and unsustainable. The dark store concept is designed to alleviate much of the difficulty and costs of fulfilling online orders, as customers are not allowed inside dark stores. Associates rapidly move throughout the dark store, fulfilling orders.

Based on my experience, and based on comments I’ve heard from retailers testing dark stores, dark stores help but do not solve the problem of costs and complexity.

The Case For The Micro-Fulfillment Model

Over my 20 years of working globally in supply chain management, logistics, e-commerce, fulfillment and last-mile delivery, I have maintained a focus on researching and mastering technology and strategy. My experience with Amazon, Kroger and leading retailers in Russia, the United Kingdom, India and China gives me a unique perspective on the grocery industry and where it is heading. Further, the company I currently work for as chief marketing officer offers micro-fulfillment and other fulfillment solutions for the industry. I do my best to share my knowledge of the grocery industry, including hosting webinars on micro-fulfillment.

When looking at what’s next in the industry, we can use the Texas-based grocery retailer H-E-B as an example. H-E-B recently announced that it has partnered with AutoStore to install its micro-fulfillment solutions across its retail ecosystem. This is not a pilot. This is an investment by H-E-B to transform its online fulfillment model from manual to automated. (Full disclosure: I advised executives from H-E-B in 2019 to select AutoStore.)

H-E-B has multiple options for how it can use the micro-fulfillment systems from AutoStore. The systems can be installed inside select H-E-B grocery stores, and/or the systems can be installed in dark stores to create automated dark stores for more efficiency. Using the AutoStore system to fulfill online and curbside pickup orders will allow H-E-B to reduce the cost to fulfill each order, plus increase the speed of picking and delivery to customers.

It’s important to understand that micro-fulfillment isn’t just technology that can be purchased and installed; it’s a strategy that can create a competitive advantage. Determining the optimal micro-fulfillment strategy includes identifying the total number of micro-fulfillment centers and/or dark stores that can be supported within your network, where they will be installed and how inventory will be managed.

Retailers that want to install micro-fulfillment centers inside their stores must be aware of the requirements for remodeling and the time needed to do so before the stores are fully operational. Retailers should also evaluate whether they want to expand their operations into different cities and states where they currently don’t operate. Micro-fulfillment can be leveraged to create an online presence in a state without owning and operating stores. Fulfillment is provided through strategically located micro-fulfillment centers.

Grocery retailers have a strategic imperative to consider the micro-fulfillment model since their stores and supply chains weren’t designed for e-commerce. In addition to dark stores, I anticipate that Amazon will open a micro-fulfillment center either inside one of its supermarkets or as a dark store to fulfill orders. The company may eventually install super micro-fulfillment centers for use inside Whole Foods stores. The way I see it, Amazon’s strategy will likely drive the industry.

Read the complete article in Forbes

Tortoise Cart Is In Big Demand By Retailers: Here’s Why

Tortoise Cart Is In Big Demand By Retailers: Here’s Why

A challenge faced by all retailers that offer last mile delivery is how to reduce the cost of the delivery. For example, a delivery made to a customer within a two-mile radius of a store or a fulfillment center will cost a retailer between $10 to $15.

Grocery retailers that fulfill online orders incur labor costs plus the costs to deliver the groceries. On average, grocery retailers lose in excess of $20.00 on every online order they fulfill. It’s a staggering amount of money when one takes into account that online grocery constitutes 30% or more of a grocery retailers sales.

An interesting fact is that over 45% of deliveries are made to customers that live within 3 miles of the grocery store that fulfilled their order. The number is slightly higher for customers that receive a delivery from a convenience store. Does it really make sense to use a car, van or truck to make deliveries to customers living within 3 miles of a store? No. However, what’s the alternative?

The alternative is Tortoise Cart.

Founded in 2019 and headquartered in Mountain View, CA, Tortoise powers low-speed remote repositioning for light electric vehicles like delivery bots, shared scooters, and cleaning robots. Tortoise
works with partners worldwide to provide the most cost-effective, zero emissions way to move anything from A to B at a low-speed. Unlike autonomous vehicles which are heavily restricted and years away from wide-scale deployment, Tortoise Cart can immediately be utilized by retailers.

Tortoise Cart is also an ideal solution for restaurants or dark kitchens to deliver food. Tortoise Cart is much larger than other robot delivery vehicles, allowing for multiple orders to be pooled on the same cart for delivery. The cart is easily navigated to travel the fastest and most cost-effective route to deliver each order. McDonald’s, Domino’s Pizza, and other restaurants continue to research solutions for delivery. Tortoise Cart is an ideal option. (Tortoise prefers to focus on online grocery delivery for its cart but the carts can be used to deliver food).

Each robot is about the size of a shopping cart and is remotely piloted, ensuring a human is always at the wheel. (Remotely piloted means that an operations tech sitting in Mexico drives and navigates the cart using a camera with a 360 degree view. This makes it faster, safer and easier to drive the carts while following all traffic laws). The carts operate on sidewalks and drive at an average speed of around 3 to 7 mph, allowing them to safely navigate around people, cars, pets, and other obstacles. The cart can carry over 100 pounds of goods (groceries, food, other products) in sealed containers, which are remotely opened by the cart operator when it arrives at its destination.

Tortoise provides retailers a contactless, zero-emission, and affordable home delivery option, mitigating sustainability and congestion challenges. The cart is 100% electric, removing
the need for a gas-guzzling delivery vehicle and minimizing the traffic impact of e-commerce.

Tortoise Cart has produced its first generation cart. Future models of the cart will have increased features and increased speeds giving retailers greater flexibility to customize options for the carts they leverage.

The real value of the Tortoise Cart is that it significantly reduces the cost of each delivery. On average, utilizing the carts for deliveries within a 3-mile radius of a store will reduce the cost of the delivery between $6.00 to $11.00; a remarkable savings. In addition, since retailers aren’t limited by the number of carts that they utilize, Tortoise Carts can theoretically become the primary vehicle for the majority of customer deliveries.

Retailers can also leverage the carts to make deliveries within a 3-mile radius of the dark stores they utilize to fulfill online orders.

Companies like Instacart and Shipt that fulfill and deliver online grocery orders for their retail customers can leverage Tortoise Cart to increase delivery options and speed to customers while reducing costs for the grocery retailers they serve.

Based on my research and experience working globally with Amazon, Kroger and other retailers, I believe the Tortoise Cart is a must-have for grocery and convenience store retailers. I compared the Tortoise Cart to the delivery robots offered by Starship and other companies, and I rank the Tortoise Cart at the top of the list for the following reasons:

  • Remote controlled cart that can travel on sidewalks or on the sides of roads
  • Large carrying capacity (100 pounds+); the average delivery robot can barely hold 20 pounds
  • Teleoperation reduces risk & removes the need for upfront mapping work; mapping work can take weeks and is very expensive
  • Lowest total operating cost in the industry
  • Extremely fast and easy to install and use
  • Average delivery cost of $4.00 per order; a savings of 50% to 75% over current last mile delivery methods that use cars and human drivers
I especially like the fact that the carts can be branded with a retailer’s or restaurants name and colors. It’s one thing to watch a slow, black and white robot barely moving down a sidewalk make a delivery. Watching a cart branded as HEB, Albertsons, Kroger, Walmart, Target, Giant Eagle, 7-Eleven, Casey’s, CVS, etc., rapidly moving down a sidewalk carrying a large amount of orders, is something entirely different.

Tortoise Cart is a global option for retailers, especially retailers located in Europe, China, Russia, Turkey, Saudi Arabia, Kuwait, Brazil, Colombia and India. (Note to Walmart: I suggest you explore leveraging Tortoise Cart to make deliveries for FlipKart in India, as well as make deliveries from your stores in the U.S. and other countries).

Like micro-fulfillment technology, something I strongly encourage retailers to adopt, I also strongly encourage retailers to embrace Tortoise Cart. Maintaining the status quo as it relates to expensive last mile delivery is a mistake. Reducing costs and becoming profitable requires a new way of thinking, a better strategy and better tools.

Tortoise Cart has rewritten the rules on last mile delivery. It’s time for retailers to become rule breakers. 

Why Instacart Should Partner With The U.S. Postal Service

Why Instacart Should Partner With The U.S. Postal Service

COVID-19 has severely impacted the retail industry. Some retailers were forced to shut down as they were deemed as being non-essential but grocery retailers have thrived. Online grocery ordering and delivery has increased over 40% since the start of the COVID crisis, and the levels are expected to remain elevated even after COVID becomes a distant memory.

The challenge faced by grocery retailers is that the cost to fulfill and deliver groceries are exorbitant. Worse, the costs to fulfill online orders can’t be scaled. For example, the cost to fulfill one online order is the same if fulfilling 1,000 online orders. On average, grocers that provide online grocery ordering and delivery lose an average of $7.00 to $11.00 on every order they deliver. The money is lost as a result of the cost of labor to fulfill, prepare and stage orders and the cost of delivery.

Without a better model, grocery retailers will continue to lose money.

Fortunately, there is a solution, micro-fulfillment; a topic I’ve written about in several articles. Leveraging micro-fulfillment center (MFC) technology from a company like AutoStore provides retailers with the ability to automate order picking, reduce costs and increase speed to customers.

MFC technology can also be utilized by companies like Instacart to innovate their retail business models and achieve a competitive advantage. However, utilizing MFC technology isn’t enough. Instacart will require fulfillment centers capable of storing groceries and food across three temperature zones – ambient, chilled and frozen – and will require an orchestrated and robust last mile delivery service to meet the needs of their customers.

Instacart is actively evaluating and testing different strategies to grow market share and improve customer experience, but more needs to be done. My advice is this: Instacart should contact the USPS and evaluate a partnership. More on this later.

The Most Underutilized Company in the U.S. 

Most people when they think of the USPS, either think about the mail box in front of their house or the Post Office they visit when they need stamps. However, what’s striking about the USPS is the sheer size of its reach and network:

  • 31,322 Post Offices
  • 811.8 million customer visits in 2019
  • $12.7B in revenue
  • 2.6B USPS.Com visits
  • $301M in online sales
  • 160 million delivery points
  • 142.6 billion mail volume
  • 1.34 billion miles traveled to deliver mail in 2019
  • 21 highly automated mail processing plants

The USPS is also in significant financial trouble as mail and small package volumes continue to decrease reducing revenue. Excluding losses so far this year, the USPS last had a surplus in 2006. Since then, it has lost $77.8 billion. Congressional Democrats want to pass legislation that could give the USPS $10 billion of support now and $15 billion over the next several years. In the most recent quarter, the USPS lost $2.2 billion on $17.6 billion of revenue. For the first nine months of its fiscal year, it lost $7.4 billion on $54.8 billion. Revenue from mail services, the most profitable part of revenue has been hit by the spread of COVID-19 and a drop in “secular” mail services were the primary reasons for the large losses.

The management of the USPS has argued persuasively for years that its financial viability is severely damaged by payments that must be made to pension plans and retirement health plans. It cannot cut these benefits without congressional approval and Congress has not given that permission and is unlikely to do so. To some extent, the USPS has been dragged under financially in ways private sector companies would not be.

Benefits are not the only issue. In its last complete fiscal year, the USPS had 496,934 career employees. It has another 136,174 non-career employees. It has 31,322 USPS-managed retail post offices. Among the questions that have been asked, but never fully answered by the USPS or any large outside research organization, is whether this number of employees and this number of postal offices are needed to deliver mail in as timely a fashion as it has for decades. There have been attempts to measure how many post offices there need to be by population count. Others have looked at how many post offices are within five miles of one another.

Based on analysis I have conducted on the USPS, I believe there are many ways for the USPS to make money above and beyond the services they provide. For example, I would sell the naming rights of post offices and mail boxes. The methodology I recommend is the same strategy used by the NFL to sell the naming rights of the stadiums built by their teams. The football stadium built by the owner of the Dallas Cowboys is called AT&T Stadium as AT&T paid for the right to have their name prominently displayed on the stadium. The USPS could utilize a similar strategy to allow Amazon or some other company to place their name prominently on a post office or on mail boxes.

Another option that should be considered is for the USPS to lease post offices to retailers that want to turn the location into a small format mixed use retail store and post office. Retailers would be given permission to expand the locations at their costs and introduce new options like selling groceries or turning the location into a convenience store.

I believe solving the issues faced by the USPS can be resolved by doing the following:

  1. Repeal the pre-funding mandate and use the accumulated reserves to fund future pay-as-you-go costs. The reserve now has about $47 billion on deposit.
  2. Adopt generally accepted accounting principles (GAAP) to determine postal service liabilities. This is something nearly every for-profit business in this country is already doing.
  3. Provide Medicare for future USPS retirees. This is precisely what military retirees are required to participate in.
  4. Change the mandate of the USPS to include fulfillment and 3PL services. Allow the USPS to make acquisitions and form strategic partnerships.

Without the changes I outlined, the USPS will remain the most underutilized company in the U.S. The USPS will also continue to hemorrhage cash. It doesn’t have to be this way.

At a Crossroads

Two companies are at a crossroads – Instacart and the USPS.

Instacart has experienced significant growth as a result of COVID-19, however, the growth isn’t sustainable. As COVID-19 fades and becomes a distant memory, consumers will revert back to their old habits of shopping in stores. (Prior to COVID-19, only 3% of grocery sales were online. I estimate that when COVID ends, online sales will stabilize between 10% to 15% of all grocery sales).

Instacart is faced with another challenge – ambition. Don’t get me wrong, ambition is a good thing. The challenge for Instacart is achieving their ambition. Here’s why.

In order for Instacart to grow and achieve their full potential, the company must change their business model. Specifically, Instacart must design and implement a fulfillment model supported by a large number of strategically placed fulfillment, warehouses and micro-fulfillment centers located across the U.S capable of supporting operations across ambient, chilled and frozen products. With such a network in place, Instacart will be able to transform from an enabler of online grocery retail and delivery, to becoming an independent online grocery retailer.

In such a model, Instacart won’t have to operate as a platform that enables online grocery transactions between consumers and their favorite grocery retailer. Instead, Instacart can offer their own groceries, including private label products, direct to consumers, bypassing their current grocery retail clients. In essence, Instacart becomes the brand. (It’s plausible that Instacart will one day open their own Instacart branded stores in select locations).

The challenge for Instacart is that creating such a network is no easy task, and it’s capital intensive.

If Instacart wants to maintain the current model whereby Instacart is a platform that enables online grocery transactions fulfilled and delivered by Instacart, they still need to change their business model. Instacart’s customers (grocery retailers) do not have the capital or vision for creating a nationwide network of micro-fulfillment centers to automate fulfilling online grocery orders. Instacart, however, can with the right partnership and strategy.

I can’t stress enough how valuable Instacart can become if they have the ability to leverage micro-fulfillment centers to automate fulfilling online grocery orders for its customers. The process of using Instacart pickers in stores to fulfill orders is a broken model and it has created a poor customer experience because of aisle crowding.

Instacart’s grocery retailers can change their inventory process to deliver groceries direct to Instacart facilities utilizing a Just In Time model. This eliminates the need for Instacart to build or lease large warehouses.

In turn, Instacart can rapidly receive inventory; replenish the inventory inside the micro-fulfillment centers it uses; automate order picking and fulfillment; and deliver orders direct to customers. On average, using such a model will reduce the cost of fulfilling an online order by over 50%. In addition, it removes pickers from stores improving the in-store shopping process.

The Value of Thinking Big

In 2013, I wrote a research paper titled A Beautiful Way to Save WoolworthsIn the paper, I argued that Amazon should acquire Whole Foods, and invest heavily in building a network of its own Amazon-branded stores consisting of different formats and using the most advanced fulfillment technology and robotics. I posted the paper on LinkedIn in 2016. The reaction? My recommendation that Amazon acquire Whole Foods and build its own stores was heavily criticized.

Amazon acquired Whole Foods in 2017, and is in the process of building its own stores. The stores are the most advanced in the world and include specialized micro-fulfillment centers and robotics.

In 2018, I wrote a series of articles stating that Amazon could acquire JC Penney, or some of its stores, and convert the stores to fulfillment centers. Additional stores could be converted to Amazon-branded grocery stores to increase traffic in the malls. The reaction? Most of the comments were negative with few believing Amazon would be interested in mall properties.

Amazon is currently in discussions with the Simon Property Group about acquiring JC Penney anchor stores and converting them to fulfillment centers and grocery stores with mixed-use retail to display apparel, shoes and other merchandise.

In July 2019, I wrote a post on LinkedIn where I argued that Walmart and Microsoft could partner to acquire Tik Tok. The idea was considered to be so outlandish, I don’t believe I received a single comment in support of what I stated.

Walmart and Microsoft recently announced they are bidding to acquire Tik Tok. This article provides details around how I came to the conclusion that Walmart/Microsoft partnering could become a reality.

I’ve written multiple times since 2018 that Kohl’s and Amazon should partner by opening Amazon-branded grocery stores inside each of Kohl’s nearly 1,200 locations. This is a recent article where I again make the recommendation. On September 4th, 2020, Kohl’s and Amazon announced a pilot to test Amazon grocery stores inside select Kohl’s locations.

The moral of the story regarding the examples I’ve provided is that it is important to Think Big. Thinking Big encourages questioning the status quo, and reimagining a new future. I didn’t have a Crystal Ball when I wrote the articles and LinkedIn posts referenced above. What I have is the ability to see things others do not because I’m willing to question everything and crush all assumptions that something can’t be achieved.

Thinking Big at the USPS

My advice to the senior leaders at the USPS is to Think Big, and reimagine a better future for the USPS.

The USPS is going through one its most challenging periods. Mail and small package volumes delivered by the USPS are decreasing, while the cost of running the USPS continue to increase. The USPS is not a viable long-term business in its present form. It doesn’t have to be this way.

USPS

I envision a new USPS. A USPS with the potential to become one of the largest e-commerce fulfillment companies in the U.S. How? By doing the following:

  • Design a strategy and project plan for becoming an e-commerce fulfillment company
  • Write a six-page memo outlining the benefits to customers and the USPS
  • Conduct a logistics network assessment with the goal of identifying how many facilities can be consolidated to free up fulfillment and warehouse space
  • Conduct in-depth analysis to identify the exact square footage available for fulfillment throughout the USPS logistics network
  • Identify the required technology requirements to manage inbound transportation, inventory receiving, inventory management, fulfillment, labeling, packaging and last mile delivery
  • Identify the total number of facilities that are optimal locations to install micro-fulfillment centers from AutoStore
  • Identify which facilities are optimal for installing coolers and freezers and calculate the cost
  • Create the business case with all applicable financial information

Next, contact Instacart and review the USPS network and capabilities. Instacart will have requirements for cold chain hence the importance of identifying which USPS facilities are optimal for cold chain and the cost for purchasing and installing the coolers and freezers. Instacart will also be very interested in micro-fulfillment.

I’m confident that Instacart and the USPS can work together to create mutual value.

I encourage the USPS to accelerate discussions with Instacart. I believe Instacart will launch their IPO between October 1st, 2020 and December 31st, 2021. Once Instacart goes public, they will be in a hyper-growth mode. (In addition to grocery fulfillment, Instacart will morph into a logistics company and food/grocery distributor among other things).

I’m also confident that with the right strategy and vision, the USPS can become a leading e-commerce fulfillment company. However, in fairness to the USPS, asking them to become a fulfillment company won’t happen without the right team. I strongly encourage the USPS to hire a team of e-commerce fulfillment, grocery and micro-fulfillment leaders with the skills and experience necessary to turn the vision into a reality.

However, a partnership with Instacart is only the beginning. With the right leadership, the USPS can fulfill orders for 3rd party sellers, retailers and brands. The USPS has the network and facilities. Now is the time for the USPS to heavily market its e-commerce fulfillment services. The future of the USPS isn’t in mail and package delivery, its fulfillment as a service.

Read more articles from PULSE’s Chief Marketing Officer Brittain Ladd