Micro-Fulfillment as a Service

Micro-Fulfillment as a Service

A challenge faced by vendors that wish to introduce new technology into the grocery industry is that many grocery retailers are risk averse. Instead of jumping at the chance to embrace new technology, most retailers take a ‘wait and see’ approach. Specifically, grocery retailers wait to see what Amazon and Walmart will do. This has been especially true regarding the topic of micro-fulfillment. Although the use of micro-fulfillment centers within a retailers grocery ecosystem makes operational and financial sense, most grocery retailers have sat on the sidelines.

That has changed as a result of the announcement by Walmart that it is going to install micro-fulfillment centers in an undisclosed number of stores. Walmart will install solutions from Alert Innovation, Fabric and Dematic.

Walmart indicated that they are still in the testing and evaluation phase and that they have not identified the optimal solution. (You can read more about the different micro-fulfillment systems on the market here).

I have proposed the use of micro-fulfillment centers inside retail stores, in buildings next to retail stores, or in offsite ‘Dark Stores’. Micro-fulfillment is a must-have for retailers. However, let me be clear, micro-fulfillment isn’t just technology a retailer can purchase and install. Micro-fulfillment is a strategy retailers can leverage to reduce costs and complexity related to fulfilling online and curbside grocery orders, create a competitive advantage, and enable growth.

Most retailers that choose to leverage micro-fulfillment as part of their strategy have entered into direct arrangements with specific micro-fulfillment vendors. For example, H.E.B entered into an agreement with AutoStore. I rank AutoStore at the top of the list for micro-fulfillment. (Dematic will probably introduce the AutoStore system at Walmart; something I strongly recommend).

Is a direct relationship with a vendor the optimal choice? Is there another option retailers can choose? Yes, there is.

Micro-fulfillment as a Service (MaaS)

I prefer retailers to purchase and install micro-fulfillment centers across their ecosystems. I believe owning and operating MFCs is a wise move strategically for retailers.

However, retailers that don’t want to own and operate MFCs have the option to utilize Micro-fulfillment as a Service (MaaS). MaaS is a service that a few MFC companies are offering to retailers. Fabric has done a great job of marketing MaaS to potential customers.

At a high level, MaaS is a service whereby an MFC company will purchase or lease a building to install micro-fulfillment centers. An MFC company can also install one or more micro-fulfillment centers onsite in a company owned facility.

Once installed, the MFC company will provide the required labor (or use a 3rd party) to run the facility. Customers that sign up for MaaS ship their inventory to a MaaS location where the inventory is either stored or immediately placed inside an MFC. Retailers will have little to no upfront costs to leverage MaaS. The MFC company will fulfill orders for their customers. On average, the MFC company running the MaaS location will charge between $.58 to $.60 per line picked.

Sounds like a great deal!! It’s not. MaaS is nearly impossible to justify due to high operational costs. On average, grocery retailers can lose up to $25 on every online order they fulfill. MaaS reduces the cost of fulfilling online orders but not as much if a retailer operates their own micro-fulfillment centers.

Based on analysis completed by several strategy consulting firms, and based on my own analysis, the MFC companies offering MaaS have greatly underpriced their services. In addition, the projected order volumes that can be filled using a MaaS model will be difficult, if not impossible, to fulfill because of limitations within the MFC systems being used by the companies I evaluated.

Regardless of the limitations, I expect MaaS to grow in popularity for these reasons: Executives at some retailers will be very risk averse. To minimize risk, they will choose to essentially outsource micro-fulfillment. I know of several grocery retailers that are in the process of evaluating micro-fulfillment systems. A few of the retailers are leaning towards using MaaS as a way to reduce capital spend and mitigate risk.

Recommendations

Using real world examples, this is what I recommend all grocery retailers that are interested in MaaS to do.

Albertsons is one of the leading grocery retailers in the United States. The company is led by CEO Vivek Sankaran, former President and COO of Frito-Lay North America. I believe Vivek should be considered one of the best CEOs working today. I have written multiple articles about Albertsons and I have publicly stated that Albertsons should merge with Ahold-Delhaize. If the merger occurs, it would create the largest grocery retail conglomerate in the United States, and one of the largest in the world.

Based on announcements from Albertsons, the company is evaluating options for micro-fulfillment. Albertsons has a relationship with the MFC company, Takeoff Technologies. (I am a former advisor to Takeoff and Fabric).

Full disclosure: I have had multiple discussions with executives from Albertsons regarding the topic of micro-fulfillment. I also advised executives from H.E.B, Ahold-Delhaize, Publix, Amazon and Walmart on the topic of micro-fulfillment. However, I do not work for a micro-fulfillment company. I work for a system integrator, PULSE Integration, that has relationships with several MFC companies. I also write articles on the topic of micro-fulfillment.

I applaud Albertsons focus on micro-fulfillment. However, what should Albertsons do?

In my professional opinion, I recommend that Albertsons purchase and install MFC systems from AutoStore. If there is resistance within Albertsons for such a model, Albertsons should evaluate MaaS as an option. However, instead of only testing MaaS as a solution with one MFC company, I encourage Vivek Sankaran to speak with AutoStore, and negotiate an agreement whereby AutoStore will operate one to three MaaS locations for Albertsons.

AutoStore hasn’t embraced MaaS due to analysis they have performed that indicates MaaS is a higher cost and lower value option for grocery retailers than grocery retailers owning and operating their own micro-fulfillment centers. However, I believe AutoStore has no choice but to offer a MaaS solution due to growing interest in the topic. I strongly encourage AutoStore to partner with Albertsons.

Sankaran should also have one to three AutoStore MFCs installed within their grocery ecosystem, including installing an AutoStore inside a grocery store, to test which MFC performs the best. Sankaran can compare the results of MaaS and a company owned and operated MFC model at the end of one year. May the best MFC solution win.

In addition to micro-fulfillment, I strongly encourage Albertsons (and all retailers) to test the use of last mile delivery carts from the company Tortoise, and testing mobile retail using vans from Robomart. Both companies are generating a lot of interest from retailers. (I am an advisor to both companies).

Finally, I recommend that Albertson (and all grocery retailers) to improve the customer experience for online grocery delivery by providing their customers with a DynoSafe or a similar product. This article outlines the importance grocery retailers “winning the porch.”

Publix, Kroger, Ulta Beauty, Sephora, Macy’s, owners of malls, convenience store chains, and large retail development companies should also test MaaS and operating MFCs within their retail ecosystems.

What’s Next for Micro-fulfillment? 

I am convinced that Instacart will invest heavily in micro-fulfillment centers starting in 2021; probably with Fabric. Instacart will go public in 2021. By 2022, 80 to 100 micro-fulfillment centers will be dedicated to Instacart’s needs. By 2025, Instacart will become an online grocery retailer fulfilling orders direct to their customers. Instacart will end their relationship with their current customers. I anticipate that Instacart will open Instacart-branded stores in select locations. If I’m correct, Instacart should acquire Fabric in 2021. (Instacart is in an interesting position. I recommend Shopify, Google or Facebook to acquire Instacart).

Amazon is investing heavily in micro-fulfillment. I anticipate that Amazon will soon unveil a 20,000 square feet MFC built inside one of their AmazonFresh branded stores. I’m convinced that Amazon has no choice but to explore the use of Nano-fulfillment centers inside Whole Foods stores. I designed one of the first micro-fulfillment centers specific to the needs of Amazon. You can read about it here.

Amazon is creating a business model whereby they will sell more groceries through their Amazon branded stores than through Whole Foods. Why? Because Amazon is going to sell branded CPG and organic products inside its supermarkets. When Amazon acquired Whole Foods, I stressed to Amazon that they should introduce branded CPG products at Whole Foods to increase customers. The stores could be re-branded to ‘Whole Foods Plus.’ Amazon didn’t introduce branded CPG products at Whole Foods and sales have stagnated.

An argument can be made that Amazon should divest Whole Foods and focus on its own AmazonFresh brand. Target is the company that should acquire Whole Foods. Target can open Whole Foods Markets inside its stores. I have recommended to Amazon on several occasions to acquire Target and also open Whole Foods Markets inside Target’s stores. Since the acquisition hasn’t occurred, I’m skeptical that it ever will. If Amazon is not going to acquire Target, divesting Whole Foods should be explored.

Amazon and Kohl’s are piloting an AmazonFresh store inside a Kohl’s store; this is something that I recommended to Kohl’s and Amazon over two years ago so I’m glad that pilot has begun. If the pilot is successful, I recommend that Amazon should acquire Kohl’s.

DoorDash, Postmates and other restaurant delivery companies must expand into delivering groceries. I strongly recommend that these companies should invest in opening their own micro-fulfillment centers powered by AutoStore or some other MFC system. Grocery retailers are actively looking for a replacement for Instacart. Postmates, for example, could open MFCs; receive inventory from grocery retailers; store the inventory inside each MFC system; fulfill online and curbside orders; and use their own delivery drivers to deliver orders.

I also believe that restaurant delivery companies that partner with grocery retailers should teach their grocery retail customers how to open dark kitchens and offer their own branded meals.

Micro-fulfillment is going to grow in popularity. Every retailer needs to ask and answer this question: What is our micro-fulfillment strategy?

For more information on micro-fulfillment, you can read articles located here and here.

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

The Biggest Opportunity In Retail

The Biggest Opportunity In Retail

I often write about the topic of retail strategy because I find the topic interesting, and I have a way of coming up with ideas that generate a lot of interest from Wall Street, retail analysts, business executives and casual followers of the retail industry. For example, I recently wrote an article about the retail industry and it proved to be wildly popular with readers. Why? Because I’m not afraid to share my opinion or publicly state what I believe certain companies should do.

The retail industry is in a funk. Several large retailers like Walmart, Target and Amazon are doing very well. However, many other retailers have either filed for bankruptcy, closed stores, or gone out of business. The best retailers are those companies that have an executive team carefully analyzing market trends and the needs of their customers. Retailers go out of business due to a lack of leadership, imagination and innovation, and not because of a lack of products on their shelves.

Although the retail industry is struggling, there are unique opportunities that I believe should embraced. For example,

  • Facebook or Shopify should acquire Instacart
  • Amazon should divest Whole Foods and acquire Kohl’s
  • Zoom should acquire a gaming company like Electronic Arts or Activision Blizzard
  • Tesla should acquire Jeep

On the surface, the opportunities I listed may not make sense to some people because they’re counterintuitive to what they already know the companies I listed. Amazon divest Whole Foods? Why? Didn’t Amazon just acquire Whole Foods?, are questions I’m confident many readers are asking themselves. Let’s dive deeper into this recommendation.

I am recognized as being one of the first people to recommend to Amazon to acquire Whole Foods. I outlined my argument in this 2013 research paper. At the time I wrote the paper, I believed that Whole Foods was strategic to Amazon. However, in subsequent articles I wrote about Amazon’s acquisition of Whole Foods, I made it clear that Amazon should sell CPG branded products at Whole Foods to increase customers and sales. That didn’t occur. Instead, Amazon is building their own 35,000 square feet supermarkets selling all of the traditional products found in supermarkets. Amazon is also selling organic products in the stores.

Here’s the problem. Amazon acquired Whole Foods but Amazon hasn’t improved Whole Foods. The percentage of customers shopping at Whole Foods has decreased. Amazon’s grocery stores, however, are very popular and highly rated by retail analysts. Amazon is creating a business model where they will sell more groceries in their Amazon Fresh stores then at Whole Foods. In fact, it’s logical to conclude that Whole Foods sales will decrease or remain stagnant.

Whole Foods is no longer strategic to Amazon. What should Amazon do?

Amazon should divest Whole Foods. The company that should own Whole Foods is Target. Whole Foods customers overwhelmingly shop at Target, and Target must improve its grocery business. If Target acquires Whole Foods, it can open Whole Foods Markets inside its Target stores. Whole Foods is strategic to Target. If Target doesn’t acquire Whole Foods, they should explore a merger with Kroger or assess selling their grocery business. (I have encouraged Amazon to acquire Target since 2018. Among the reasons for doing so is that Amazon can open Whole Foods Markets inside each Target store. I believe Amazon will acquire Kohl’s, not Target).

Not everyone will agree with my recommendation.

CVS Pharmacy And The Biggest Opportunity In Retail

In 2015, Target made the decision to sell its pharmacy business to CVS for $1.9B. Most retail and Wall Street analysts supported Target’s decision. This link provides an overview of CVS.

I believe CVS should consider making a decision similar to Target. Specifically, I believe the biggest opportunity in retail is for CVS to sell the retail portion of their stores while maintaining ownership of the pharmacies in each store. CVS operates 9,900 stores including pharmacies inside Target’s stores. Here’s why.

Walk into most retail pharmacies and what do you see? Usually its a mixture of products often with no rhyme or reason. CVS Pharmacy, for example, advertises itself as a ‘Pharmacy and drugstore which fills prescriptions and sells health products, snacks, and basic groceries.’ The problem is that CVS isn’t a grocery store or a traditional convenience store.

The focus at CVS is on fulfilling prescriptions. It appears that the products in the stores are there to fill space and entice customers waiting for their prescriptions to be filled to buy something. Anything. And that’s a problem. It’s also an opportunity. Selling their retail operations will generate generate a significant sum for CVS, and allow the company to focus exclusively on their pharmacy business.

The following is a list of companies that could potentially be interested in acquiring most if not all of CVS’ retail locations:

  1. Amazon could open AmazonGo and Amazon Go Market stores inside each of CVS Pharmacy’s retail locations except where CVS operates pharmacies inside Target’s stores. Amazon is at the top of the list of the companies I believe that should acquire CVS Pharmacy’s retail operations.
  2. Instacart could partner with CVS to design, implement and manage all retail within the stores; Instacart leverages the stores as grocery drop off locations. It’s plausible that Instacart would be interested in opening Instacart-branded stores complete with a CVS pharmacy inside each.
  3. Shopify could opens a new form of retail store focused on displaying and selling products from Direct to Consumer brands. Not my favorite option but the idea has potential.
  4. Walmart would certainly be interested in extending its reach with a new retail format.
  5. Grocery retailers would certainly be interested in the opportunity to leverage the stores. Lidl should jump at the chance of acquiring CVS locations.
  6. Couche-Tard, the owner of Circle K convenience stores, would be able to do some very interesting things if they acquired CVS’ retail business. (The weakness in the convenience store industry is the lack of a format that includes pharmacies).

There are other companies I can name, but one name stands above the rest and that’s Target. Because of their relationship, I believe Target is the ideal company to approach CVS about either acquiring their retail operations, or forming a partnership with CVS for Target to open a small retail format inside their stores. CVS Target. I like the sound of that. However, AmazonGo stores are likely the best fit hence the reason why I rank Amazon over Target.

The Wild Card – Google acquires CVS’ retail operations and reimagines the retail experience across nearly 10,000 locations. Google’s focus on enabling retail isn’t thinking big. I strongly encourage to start making acquisitions. Instacart, TikTok, Target, the list is nearly endless. Partner with Shopify. Do something BIG, Google.

If CVS keeps their retail operations, I encourage the company to consider making an acquisition of goPuff and/or Sprouts Farmers Market. Another option is partnering with the Russian retailer VkusVill. CVS must create a better experience for their customers which should include an increased selection of groceries and also delivery. I also encourage CVS to go big into private label brands for better pricing. What’s certain is this: CVS cannot maintain the status quo in their stores.

I encourage CVS, and any retailer that would acquire the retail business from CVS, to introduce the use of micro-fulfillment centers across the CVS retail store ecosystem. Due to the small size of the stores, leveraging micro-fulfillment will accelerate the ability to carry less inventory in the stores while maintaining high in-stock levels through rapid replenishment. CVS is making a mistake by not already implementing micro-fulfillment centers.

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

Retail Strategy And Learning How To ‘Think Big’

Retail Strategy And Learning How To ‘Think Big’

Prior to Covid-19, most retailers were operating with the same business models that they had used for years. When Covid-19 hit, many retailers were identified as being nonessential, resulting in their stores being shut down for long periods of time. The only retailers allowed to remain open were those deemed essential — grocery stores and pharmacies, for example.

Being listed as a nonessential retailer resulted in lost sales and furloughing thousands of employees. As 2020 progressed, retailers focused on implementing strategies for social distancing and increased cleaning practices inside their stores. Many consumers avoided shopping in nonessential retail stores that sold apparel, shoes and other items found in department stores, and instead focused on essential items like groceries and food. 

As retailers enter 2021, essential and nonessential retailers will be faced with the need to evaluate their strategies. This is easier said than done for most retailers. Nonessential retailers will need an actionable vision that will set them apart from their competitors while attracting customers to shop in their stores. These same retailers will also have to determine if stores are strategic to their operating models or if moving to an online model is the better strategy.

An unknown for retailers is what will happen in the year ahead. Will Americans embrace getting vaccinated and will Covid-19 be in the rearview mirror by the end of 2021? Or do we have more hurdles ahead with the virus?

Retailers can’t operate based on assumptions. They must operate based on the needs of their customers and company. What’s certain is that the strategies used by retailers in 2021 must be an improvement over the strategies used in 2020.

The Science Of Strategy

In my consulting practice, most retailers that contract my services are focused on improving the strategy they were using to compete in the market. I enjoy working with retailers, but on the topic of strategy, I find it necessary to spend an exorbitant amount of time understanding who within a company came up with the current strategy and their motivation for doing so.

I continue to be amazed at the number of CEOs and other senior executives that identify the strategies they want to use based on “gut feel” vs. science. In some cases, retailers operate without a strategy.

To simplify the understanding of strategy, I leverage several methodologies that I learned from Capgemini and Deloitte. In addition, I utilize game theory, which is referred to as the science of strategy. When used correctly, game theory is ideal for comparing and analyzing what strategies will achieve the desired outcome for a retailer.

What I like most about game theory is that it provides an opportunity for executives to better understand the impacts of their decisions on their companies and, most often overlooked, their competitors.

For example, I’ve worked with retailers that prefer to minimize markdowns on the products they sell in their retail stores. However, increased competition reduced sales leading to a rash decision to markdown items by as much as 25%. Executives believed the decision would increase the number of customers in the stores to take advantage of the bargains.

The opposite happened. Customers chose to bypass the retailer altogether and instead go shopping at everyday low-price leaders or discounters that carried similar products. Reducing prices by only 25% failed to attract bargain hunters because those shoppers could find bigger savings elsewhere.

Strategy is among the most difficult challenges faced by retailers, and it’s about to become even more difficult.

Learning How To Think Big

When I worked at Amazon, leading the expansion of AmazonFresh and Pantry, a phrase we used frequently in the company was “think big.” Jeff Bezos challenged everyone who worked for Amazon to come up with ideas that would delight customers and, in turn, create an increased advantage for the company.

Thinking big was part of the culture at Amazon.

Most retailers, however, don’t think big and it’s not part of their culture.

A technique I use to teach retailers to think big is to review a series of examples that question the status quo within retail. These examples showcase the value of questioning the status quo and challenging a company’s culture to embrace big ideas and change. Each contains the name of a well-known retailer (or another company) along with a recommendation to acquire a company, merge with a company or make some other type of “big move”:

• Amazon acquires Target, Kohl’s or Shopify.

• Shopify acquires Instacart.

• Kroger and Target merge.

• Facebook acquires Instacart or Target.

• Walmart acquires TikTok or Instacart.

• FedEx and Walmart partner and acquire Shopify.

• Tesla acquires Jeep.

• Instacart opens automated micro-fulfillment centers and becomes an online grocery retailer.

• Google acquires eBay, Instacart or Shopify.

Game theory comes in when challenging and discussing the value of each example and identifying which recommendation would generate the best results.

The size of your retail business doesn’t matter. This exercise is helpful to understand the impact that big strategic moves can have on your company. By applying game theory, you can learn how to answer the who, what, when, where and why of each recommendation.

After this exercise, thinking strategically about the moves your company can make becomes easier — at least that’s what I’ve found in my work with my clients.

2021 is going to be another difficult year for many retailers. Learning how to think big is a must. The future of many companies will depend on it.

Read the full article featured in Forbes

 

How Retailers Can Win in Online Grocery Delivery

How Retailers Can Win in Online Grocery Delivery

According to Oracle’s latest grocery industry survey, 61% of consumers said they had ordered groceries online during the pandemic, with 41% now shopping online for their groceries more than in the store. Ninety-two percent of respondents also said they would likely continue shopping for their groceries online. 

The survey provided an interesting insight into the delivery and pickup preferences of customers who order their groceries online, with 3 out of 4 indicating they had their groceries delivered to their homes, 16% picking up their groceries inside the store and 11% opting for curbside. 

Covid-19 has made unattended delivery (no human contact with a delivery driver) a necessity, and this expectation is not going to change. Post pandemic, I believe there will be an even stronger demand for unattended delivery fulfillment as people begin to spend more time out of their homes again while continuing to order their groceries online. 

The Problem With Online Grocery Delivery

Online grocery ordering and delivery is becoming more strategic to grocery retailers.

In my role as a strategy consultant to some of the largest grocery retailers in the world, I’ve witnessed the growth of online grocery fulfillment. I’ve also seen the problems associated with this growth. For example, in my opinion, the worst business model ever created is online grocery ordering and fulfillment in its current format. Grocery retailers can lose up to $25 on every online order they fulfill. I’ve previously written about the costs associated with fulfilling online orders and how introducing micro-fulfillment will greatly reduce the costs and complexity associated with online grocery ordering and delivery. 

The best way for me to describe the process for delivering groceries to customers is that it is broken and getting worse. Grocery retailers are experts at running their stores, but most do a poor job of optimizing the logistics required to make deliveries. Out of fear of losing business to grocery retailers that offer online grocery ordering and delivery, most grocery retailers are offering the service.

However, instead of applying the science of supply chain management to increase the density of orders in specific regions to add more orders per delivery vehicle, retailers are embracing increased volume. This has resulted in the need for more associates to pick and fulfill orders along with an increased number of delivery drivers and vehicles. Because of a shortage of associates and delivery drivers, many grocery retailers are unable to fulfill orders to meet the delivery windows for their customers. 

To make matters worse, groceries are perishable. It is impractical, unsanitary and unsafe to deliver groceries to a home only to leave the groceries outside. However, the increased volume is making it difficult for grocery retailers to deliver all the groceries ordered online to their customers. Several grocery retailers recently contacted me to solve this problem: Even if they make deliveries between 6 a.m. and midnight, they are still unable to make all the required deliveries. Consumers are then abandoning grocery retailers that can’t deliver during the selected time window. 

The inability to keep up with the demand for grocery delivery has resulted in many retailers contracting third-party delivery companies. The problem with these companies is that they do not reflect the image or brand of the store. The use of third-party delivery services lacks accountability. 

Contract day workers answer an alert to fulfill a delivery for one of the many delivery service companies. There is no dress code, no company standard and no way to monitor or enforce accountability. I am frequently contacted by customers reporting an incident with a third-party delivery driver. The most common complaints I hear are that delivery drivers steal groceries, eat some of the food that was ordered or refuse to deliver the groceries to the customer without being tipped upfront. Less common but more serious complaints are of delivery drivers who have shown up high or drunk or have threatened customers. 

In order to not lose a sale, many grocers are willing to risk compromising delivery integrity. I hold senior executives at grocery retailers accountable for the breakdown of common courtesy and respect related to online grocery delivery. 

The Solution 

After researching online grocery deliveries globally for over two years, I believe several solutions are available to improve the service and delight customers. 

The first thing that has to occur is that grocery retailers need to understand that whoever wins the porch will win the battle for attracting and retaining customers. Retailers have to be willing to introduce technology to eliminate the current constraints associated with grocery delivery and provide customers with better service. 

Based on my research, I recommend that grocery retailers consider seeking temperature and climate-controlled container solutions that can be secured to a porch, garage, home or office, enabling customers’ completely unattended receipt of their order. Consider what items you’re fulfilling for customers — chilled and frozen products, medications, dry foods and so on —when selecting the appropriate solution. 

Grocery retailers should also explore installing temperature-controlled lockers in high-density locations to allow for mass delivery of groceries. Customers can pick up their groceries at their leisure. Retailers can also install this type of system at their stores. 

Retailers must raise the bar when it comes to last-mile delivery. Leveraging mobile retail or introducing the use of grocery delivery carts should become the norm. And finally, retailers should rethink their use of third-party delivery companies. Retailers should own the customer relationship, from online ordering to delivery, and insist on integrity at all times.

Grocery retailers that introduce these strategies and technologies into their businesses will help to protect the integrity of their delivery models, increase the customer experience and accelerate the growth of online ordering.

Read the full article in Forbes

Social Commerce & Online Auctions Revolutionizing Retail

Social Commerce & Online Auctions Revolutionizing Retail

Retail is one of the oldest industries still operating. Throughout history, individuals have had a desire to buy for fun and a need to buy out of necessity. Retail is also an industry that is constantly changing. The arrival of Amazon has ushered in the growth of e-commerce, and consumers are increasingly shifting their preferences to ordering products online vs. shopping inside retail stores.

Based on what I’m seeing, I believe retail is about to undergo further changes as a result of the growth of social commerce, where buyers form a group in order to receive discounts from suppliers. Complementing social commerce is the growing trend of using online auctions to find the lowest bidders to fulfill orders for apparel, shoes and other merchandise.

Much of my academic research during three master’s degree programs was focused on retail, auctions and supply chain management. Since 2015, I have conducted research on one of the largest social commerce platforms, China-based Pinduoduo. In addition, I have provided consulting to retailers interested in social commerce and online auctions. (I do not mention these retailers in this article.)

Auction-Driven Social Commerce

Pinduoduo has taken China’s retail industry by storm. The platform reportedly had 585.2 million active buyers in 2019, surpassing JD.com’s 362 million and catching up to Alibaba, which reported 712 million users (in the 12 months leading up to September 30, 2019). I believe this can be credited to Pinduoduo’s executive team’s focus on efficiently receiving, fulfilling and shipping orders to customers.

To accelerate growth, products on Pinduoduo list two prices: one for individual purchases and a price for team purchases. Team purchases encourage consumers to convince as many friends and family members as possible to buy the same products together. The more products that are purchased, the lower the price for each product sold.

The model from Pinduoduo differs significantly from a warehouse club like Costco or Sam’s Club, which already sells a product in bulk. Convincing friends and family members to buy the same product in bulk doesn’t decrease the price.

I believe this is what’s missing in the current commerce model — duplicating the social experience online where friends and family buy together and have fun together. Further, I anticipate a move toward an online bidding model, whereby more than one seller can bid on selling their products to a group of consumers. This model has the potential to explode in popularity for several reasons.

First, the Nobel Prize for economics was recently awarded to two Stanford University professors for their work related to online auctions. The award has generated interest from retailers (several of them my clients) who wish to learn how to leverage auctions within their retail ecosystems.

Second, at nearly $800 billion, the grocery industry remains one of the most important industries operating today. Consumers purchase groceries more than any other commodity on an annual basis.

However, according to many economists and analysts, grocery retailers are examples of monopolies due to the fact they control all pricing power over the products sold in their stores. Walmart, for example, reportedly controls over 50% of the grocery market in many areas within the U.S.

In addition, the growth of online grocery ordering and delivery has uncovered a weakness in the current model: Every online grocery order is treated as a separate order. No attempt is made to combine orders to sell in bulk to reduce prices.

I believe the current grocery model can easily be disrupted. For example, a third party with an online platform for ordering groceries could enter the market with the promise of reducing grocery prices to their lowest possible level through the use of an online auction.

Instead of treating every online order as a separate transaction, a third party would be able to bundle hundreds of thousands of online orders and, on a daily basis, conduct a bid whereby brands, grocery retailers and wholesalers bid to fulfill the online orders at the lowest cost. (I wrote more about this topic earlier this year.)

Removing pricing power from grocery retailers has the potential to drive significant growth to a third party that perfects the use of social commerce and an online auction for selling groceries.

When To Use An Auction Model

Virtually all retailers can use an online auction and social commerce in their business, assuming they have a platform with the required technology. However, there are risks that must be taken into account. For example, retailers must understand what their costs are, and they must have a cutoff price that they won’t exceed, lest they rob themselves of margin and eliminate any chance of making a profit.

Also, retailers must have a supply chain capable of managing inventory and shipping bulk orders to many locations. Partnering with the right inventory optimization software can provide the needed algorithms to manage and optimize inventory.

It should be noted: I don’t recommend the use of social commerce or online auctions for high-value products that require a long time to make. I evaluated an online auction model for a company that manufactures extremely complex and expensive (over $1 million in some cases) CT scans and other intricate medical equipment. Using an auction would prevent the company from personalizing its process for making the machines and showing how its “hands-on” approach provided value above and beyond price.

Retailers must evolve or they will surely die. The status quo is no longer acceptable, and I strongly recommend all retailers in the U.S. to crush it.

Read the full article in Forbes

Optimal Retailer Micro-Fulfillment Strategy

Optimal Retailer Micro-Fulfillment Strategy

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