Traditional Retail Chains are trying every trick in the book to keep their customers.
Retail is the new hotbed of innovation. It has become evident that what started as an online revolution has swiftly moved onto newer turfs and brought the battle right to the doorsteps of the Brick & Mortar stores. We have seen bigger players in eCommerce pushing some traditional incumbents out with each passing year. In the last year, there are more signs of online leaders foraying into more on-ground forms of retail, primarily targeted to the daily grocery shopper. Forrester Research estimates that online grocery spending around the world, worth about $150 billion in 2017, is set to double in the next five years, reaching $334 billion.
This has indeed forced traditional retailers to experiment swiftly with new fulfillment models across their channels. Tactics employed, especially in the grocery segment, have been far-reaching both in terms of impact on consumer buying behavior and retail operations.
Let’s look at two major order fulfillment breakthroughs achieved in Retail which has defined the “New Grocery Retail ” – ‘Order Online & Pick-up at Stores’ and ‘Dark Stores’
OOPS it works !
Many reports suggest Order Online and Pick-up at Stores (OOPS) is gaining in popularity in the U.S. and Europe. With OOPS shoppers enjoy the convenience of browsing online and ordering in their spare time and picking up at a store of their preference at a scheduled time. This option has also taken away the uncertainty of home delivery especially during festive seasons when the spike in volumes can cause logistics nightmares even with world-class delivery engines. Major Retailers including Walmart, believe such services will help them reclaim some lost consumers and generate additional sales during each pick-up visit.
However, it is yet to be empirically proven whether this service has generated enough returns to justify the additional investment in automation, IT and manpower. And as with most innovations this strategy has its share of issues. An army of pickers roving up and down the store aisles picking items, can disrupt the experience of in-store shoppers who value it the most. Secondly, as stores will have limited range and stock of products compared to a Distribution center, online shoppers may not find all items in a single store, again diluting the shopping experience vis-a--vis pure online channels.
Profitable online grocery fulfillment is one of the most challenging feats of the retail world today as the speed, scale and handling can be daunting even to the best in the game. However, the growing interest of consumers to buy groceries online has enticed big-wig retailers to put their minds into solving the toughest fulfillment challenge.
There is no ‘One Size fits all’ fulfillment strategy
Many traditional retailers started their online grocery delivery service from their existing stores i.e. Online Delivery from Retail Stores. This was definitely a quick and simple way of getting the service going and e-grocery leaders like Tesco, was one of the first notable adopters of this model. In this model, a team of pickers, preferably in a lean period, are employed to pick orders from the shelves of the store closest to the location of the order destination. The pickers consolidate orders in separate bins of a cart and bring it to the packing and labelling stations where they are made ready for delivery. These packages are then shipped by trucks to the nearby delivery locations.
However this model of combining in-store and online order fulfilment has its own challenges. One, pickers moving around the stores fulfilling online orders may disrupt the shopping experience in the supermarket and conversely too many shoppers can slow the pickers resulting in a drop of picking efficiency. Secondly, limited store inventory can lead to a loss of in-store sales due to stock-outs, or store inventory carrying costs could go up significantly unless a sophisticated inventory management system is employed.
As the volume of online orders increased and efficiencies started to matter more, some retailers with deep pockets invested in massive highly automated Online Fulfillment Centers with sophisticated ASRS (automated storage and retrievals systems), vertical carousels and conveyor-based automation systems for order picking. However these projects are typically very capital intensive and take a long time to implement, usually between 1 to 2 years. Given the low margins and dynamic nature of grocery retail, all players may not have the appetite for such high breakeven investments, although this solution could work well for fulfillment in dense metropolitan areas.
In the quest for better solutions, retailers like Tesco have come up with the concept of Dark Stores to fulfill online grocery orders. These stores look similar to standard supermarkets, but from the fact that the people shopping in the aisles are company associates picking orders on behalf of online consumers. Availing the services of a dark store, the customers can shop online and collect their order from a nearest dark store within a few hours of ordering. From the retailers' perspective, setting up a dark store is cheaper than setting up a dedicated warehouse. Also, it is more efficient to pick orders from dark stores than from normal stores, mainly because there is no hindrance of other store customers.
What will it take Dark Stores to succeed?
The long term success of Dark Stores fulfillment will depend on whether retailers are able to scale the model profitably and increase online share of their grocery business. In my mind, what will matter most for the success of Dark Stores is the level and kind of automation for inventory management and order fulfillment.
Automation will be the biggest success factor, since the current labor intensive order picking is inefficient and not scalable. The typical dark store processes 220 orders per day with nine delivery vans requiring 70 associates to manage the effort. Both Labor availability and labor costs, are going to impact the viability of operations in the medium to long term. Hence the kind of automation is also going to be an important decision.
As mentioned earlier, retailers have experimented with massive warehouses with highly rigid automations systems like shuttle systems, carousels and conveyors. Apart from the cost and time to implement such massive projects, their inability to adapt to ongoing changes is the major impediment. The automation which is ideal for New Retail has to be flexible in a way that it can adapt to changes in order volumes, product range and order sizes without losing efficiency. The best automation system will drastically reduce the labor dependence of all labor intensive fulfillment tasks like put, pick and order consolidation. It will also be capable of delivering extremely tight Order-to-Ship SLAs as most grocery orders need to be delivered on the same day and at a scheduled time slot. The automation system will need to have an extremely robust software which will give a real-time picture of available stock for sale and trigger intelligent replenishment actions to avoid any loss of sale.
Today, there are a range of commercially available Goods-to-Person(GTP) automation system, but what comes really close to meeting the needs of Dark Store Order fulfillment model is the AMR( Autonomous Mobile Robot) based Goods-to-Person system. AMR based GTP systems can increase labor productivity by as much as 4X and are highly flexible in terms of adapting to ongoing business changes. The other advantage of Mobile Robots systems is that they are easily and quickly scalable so that retailers invest when they actually have to ramp up capacity, and not in advance.
Finally, I think winning the Online Grocery challenge may take retailers a mix of fulfillment strategies to address the needs to different demand centres. This is what leaders like Tesco have already started moving towards; a multi-pronged fulfillment model which includes a combination of dark stores to serve remote regions of the country and dedicated dot-com FCs to serve densely populated urban markets.
These are exciting times for grocery shoppers as a lot more innovation will be targeted towards making shopping more convenient in a bid to lure their loyalty.
GreyOrange’s Goods-to-Person system, Butler, is enabled by an AI-based software platform called GreyMatter, to handle the complexities of online grocery fulfillment. With this real-time optimisation engine, the system can extract insights from continuous real-time data feeds and leverage in-built Machine Learning algorithms to take dynamic inventory storage and replenishment decisions.