Today’s retail customer utilizes technology that has drastically advanced their expectations. For grocery, modernizing through automation is the optimal way to meet them. Advances in microfulfillment allow you to embrace affordable, user-friendly systems that respond to modern shopper demands while greatly improving the end experience for customers. Cuhaci & Peterson Architects PULSE Integration and KPS Global are teaming up to provide powerful end-to-end solutions to reimagine grocery for a brighter future — starting now.
Prior to the pandemic, online grocery shopping accounted for just 5% of all grocery sales in 2019, according to data from Mercator Advisory Group. As of February 2021, online grocery shopping had increased 230% from pre-pandemic levels, according to Adobe research.
In 2021, consumers continue to shop online, but I’ve found that retailers are under pressure to deliver orders faster. This is no easy task for most retailers, as they don’t have a business model suited to making deliveries in several hours — let alone in minutes.
The desire for speed on the part of consumers has resulted in the creation of a new business model known as “instant on-demand delivery” whereby customers can place an order and receive their delivery in as little as 10 minutes.
New entrants like Gorillas, Fridge No More, Gopuff, Getir, Dija and Jokr have exploded on the scene and are attracting significant investor capital. An advantage of on-demand delivery companies is that they can often launch operations very easily due to lower-cost and lower-tech operating models.
Many retail analysts are claiming that on-demand delivery is the next big thing in retail. Is it? Should retailers embrace on-demand delivery? If so, how? I’ll answer these questions in the next section.
Grocery Retailers Versus On-Demand Delivery Retailers
Although all retailers can technically utilize on-demand delivery, I am using the grocery industry as an example of how retailers operate and the changes they will need to make for the purpose of this article.
With the growth of e-commerce, grocery retailers have invested capital into creating the ability to fulfill online orders themselves or by using third parties that perform most functions for them: Think Instacart or Shipt.
The biggest drivers of costs related to e-commerce for grocery retailers are generally the processes required to pick products from a store shelf or from a location in a fulfillment center, pack the items into grocery bags and totes, and deliver the orders to customers. A detailed example of the costs associated with fulfilling an online grocery order can be found on the MWPVL International website here.
Most grocery retailers operate stores that have their own costs related to store labor, utilities and additional costs associated with running and operating stores. Some grocery retailers fulfill all online orders from their stores, but many grocery retailers fulfill orders from large distribution centers. Distribution centers may employ associates or leverage automation to fulfill orders.
Based on my experience consulting for leading grocery retailers in the U.S. and globally, most grocery retailers are able to offer same-day delivery. Many grocery retailers aim to offer two-hour grocery delivery, but they may not be able to do this consistently without using third-party delivery companies like Instacart or Shipt.
Companies that offer on-demand grocery delivery operate with a completely different business model. For example, the average number of items carried in a supermarket is 28,112, according to 2019 FMI data. This means there can be tremendous variance in the number of products that customers order. The higher the number of products ordered is, the longer it takes to pick the items and fulfill the order. In my experience, on-demand grocery retailers tend to offer far fewer products.
Offering a smaller number of products makes it easier to fulfill orders, especially if customers are ordering fewer items from the on-demand retailer.
Unlike grocery retailers with lots of stores and large fulfillment centers and warehouses, on-demand retailers typically operate manual micro-fulfillment centers in the neighborhoods and regions they serve.
The biggest difference in the model is the way the companies utilize labor. On-demand retailers typically hire workers who can pick and fulfill orders quickly, place the items picked into a backpack, and walk to the customer or ride a bicycle to them. Some companies claim they can deliver groceries in as little as 10 to 15 minutes.
One of the leading grocery delivery companies, Instacart, recently announced that it would be offering an option called “Priority Delivery,” which offers delivery in as little as 30 minutes.
Should Grocery Retailers Embrace On-Demand Delivery?
Many grocery retailers are likely grappling with the question of whether or not they should offer their customers a separate grocery service for essential items. Yes, I think they should. Here’s why.
I believe consumers will continue to push retailers for faster deliveries with a goal of near-instant gratification. I often state in the articles I write that the future of delivery is delivering to people, not places. Gone are the days when retailers only need to deliver to a customer’s home. Instead, I believe retailers will have to deliver to wherever the customer is — and do so quickly.
Retailers should understand that the need for speed will likely only increase, and they should work to become experts at offering this service. As I’ve written about before, I strongly encourage grocery retailers to open micro-fulfillment centers to fulfill online grocery orders and supplement their network with nano-fulfillment centers to reduce the cost of fulfilling online essentials orders. (Full disclosure: My company helps retailers do this, as do others.)
I strongly encourage grocery retailers to leverage data to better understand the daily consumption habits of their customers, too. This requires collecting data to identify what products customers purchase to use and what products customers purchase and eat or drink by the time of day, day of the week, and week of the month. The more granular the data is, the better you can plan your offerings.
In turn, retailers need to build a dynamic pool of easily replenished inventory to meet the needs of their customers 24/7.
I also encourage grocery retailers to explore the use of mobile retail vans for essential items. The business model has been adopted in Japan, as Warehouse Automation explains, and some mobile markets have been developed in the U.S.
What I recommend won’t be easy for retailers to accomplish. However, without the ability to meet the demand for speedy deliveries, retailers may lose customers.
PULSE Integration has been featured as a top material handling system solution provider for 2021 by Logistics Tech Outlook Magazine.
Logistic Tech Outlook provides an annual listing of 10 companies that are at the forefront of providing material handling system solutions and transforming businesses. The magazine is read by over 68,000 subscribers who are key decision-makers in the logistics sector.
The magazine also features contributory articles from senior management executives from distribution, warehousing, manufacturing, supply chain experts, logistics professionals, and other technology decision makers on how material handling solutions improved operational performance in their organizations.
On one side, there are the innovative, tech-savvy firms that are forging ahead full speed with digital transformation strategies, and reaping the benefits of doing so. On the other side, are businesses that have been slower to embrace the ‘Industry 4.0’ trend and who are at risk of falling behind as a result.
Deloitte reports that early adopters of smart factory initiatives have enjoyed average gains of 10 to 12% in areas such as manufacturing output, factory utilization and labor productivity. Research published in The Harvard Business Review found that digital leaders are 1.5 times more likely to optimize production runs based on demand forecast.
It isn’t that the benefits of digitization are disputed. According to another study carried out by Deloitte, 69% of decision-makers said switching to a digital supply chain would deliver exponential or significant benefits to their business.
Yet only a third said they were prioritizing this as a strategic objective. Asked what the barriers to digitization were, the most common answer was budgetary constraints. Other issues cited included not knowing where to start, misalignment of competing priorities across the business, and difficulties making the long term business case within a rigid financial reporting framework.
Making Good the Promise
As far back as 2016, industry bodies were heralding mobile robotics as critical pieces in the jigsaw for achieving agile, efficient “always-on” supply chains. According to Robotics.org, the use of mobile robots as an intralogistics solution would streamline workflows, cut picking errors, boost throughput, consolidate space and offset rising labor shortages and costs.
These are all benefits that the challenges of the COVID-19 pandemic bring into sharp relief. As a result, Interact Analysis has said that it believes the impact of the pandemic will lead to a long-term net rise in mobile robotics adoption.
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.
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.