Online Grocery Orders Could Be a Robotics Gold Rush
From March to April, inbound sales inquiries at micro-fulfillment company Fabric doubled. Website hits shot up 50 percent, and its sales pipeline volume increased 60 percent. The growth CCO Steve Hornyak expected to see in the next year happened in 30 days.
“I’ve never seen a tornado of activity like this — in both size and speed — before in my life,” he said. “Each day I think, ‘OK, we’ve hit the max,’ and then more things pop up.”
Fabric provides software and robotics that turn the backrooms of grocery stores — or even empty buildings — into automated micro-fulfillment centers for grocery pick-up and delivery. For years, grocers have contended with very low profit margins for e-commerce orders. Most, Hornyak said, kicked that can down the road. Online orders made up a small part of total business, so time was on their side.
Then a global pandemic hit, and online grocery orders jumped 110 percent.
“The virus is a time machine.”
“The virus is a time machine,” Hornyak said. “E-commerce got thrown five years into the future.”
Before, some grocers were testing slow rollouts of micro-fulfillment set-ups. Others hunkered down and relied on third-party picking services like Instacart. Now, they’re facing an e-commerce landscape that may never look the same — and figuring out their plans.
What is micro-fulfillment?
Grocers Have Lots of Micro-Fulfillment Solutions to Choose From — Maybe Too Many
Big grocery retailers need coherent e-commerce strategies sooner rather than later. But those strategies aren’t easy to come by, said Mike Futch, CEO of Tompkins Robotics.
Tompkins Robotics is a subsidiary of supply chain firm Tompkins International. Its product is t-Sort, an army of independent, wheeled robots that — you guessed it — sort things. For grocers, automated sorting reduces labor costs and makes online order fulfillment easier.
Futch said that, even before the pandemic, non-stop prognosticating about e-commerce and the future of brick and mortar left many of his clients disoriented.
“They’ve been bombarded with a lot of pundits and people who are forecasting where the market’s going and what they need to do,” he said. “And I’ll be honest with you: There’s a fair number of people out there who aren’t really sure how to go forward.”
That could also be due to the sheer number of options.
First, there’s the manual approach the vast majority of grocers have been using. Sometimes, grocery store employees themselves pick items off shelves or out of inventory and prepare them for pick-up or shipping. But manual picking is expensive — “The lowest number I’ve heard is $13.40 toward labor for each order manually picked, the highest number I’ve heard is $18.50,” Hornyak said.
This method also fell apart when the share of online orders ballooned, since stores weren’t designed for high-volume picking and packing.
Option two: Grocers can outsource manual picking to third-party picking services. But that presents other problems, Hornyak said. First, shoppers become loyal to the picking services and stop caring where their products come from. Second, those picking services start to infringe on grocers’ trade promotions with consumer packaged goods brands. In other words, as consumers increasingly select Frito-Lay products on Instacart, for example, Instacart will offer to run Frito-Lay ads on its website, and that brand will divert ad spending from grocery stores.
Oh, and after all that, the aisles are still crowded.
“I’ll be honest with you: There’s a fair number of people out there who aren’t really sure how to go forward.”
Option three: Grocers can set up standalone micro-fulfillment centers or “dark stores,” customerless spaces where employees assemble online orders. Takeoff Technology, another provider of robotic micro-fulfillment for grocers, builds automated centers strategically placed to reduce last-mile delivery costs. It’s seen a double-digit increase in orders since the pandemic began, co-founder and CEO Jose Aguerrevere told the Wall Street Journal.
Option four: Grocers can reorient store layouts to dedicate space for online order fulfillment. If there’s automation involved, all the better — robotic systems are estimated to fill orders about 10 times faster than humans. Fabric lets clients choose between using its platform at their own facilities or selling their products through one of Fabric’s existing micro-fulfillment centers. But Hornyak said in-store micro-fulfillment provides a shortcut, since grocers have already chosen real estate close to end customers.
“People who hadn’t considered doing an in-store or back-of-store proposition, which is really what our focus is and where we believe the market is going, are opening their eyes and saying: ‘I already have this network built: my stores. Why not leverage the real estate I have?’” he said.
Tompkins, meanwhile, offers solutions for all four approaches. While Fabric and others sell complete systems — from automated storage and retrieval (ASR) to autonomous mobile robots (AMR) — Tompkins tacks on its t-Sort solution to existing ASR, AMR or manual picking systems.
Futch didn’t share how the company’s metrics have changed since stay-at-home orders kicked in, but he said Tompkins Robotics is preparing for a hiring spree once it’s able to begin installation work again. In the meantime, he said he’s hearing from grocers, mall anchors, supercenter operators and club warehouses looking to cement their plans for micro-fulfillment.
“Some [retailers] are just trying to coast and focus on the business at hand,” he said. “Others are being strategic thinkers about what the fall will look like, what next year will look like and the year after. Those are the ones we’re having conversations with and negotiating contracts and getting calls almost daily.”
For Grocery, E-Commerce Volume May Have Changed Forever
For grocers, the coronavirus not only offered a glimpse into automation’s future, Hornyak said — it sped up the clock.
“If you’d asked me before the virus, I would have said we’re going to be at 10 to 15 percent automation in five years and 20 to 30 percent in 10 years,” he said. “But now, 10 years out, do I think 50 percent of the grocery business could be done by robotics? Yeah.”
For reference, 2.9 percent of food and beverage sales in the United States in 2019 happened online.
Regardless of how fast grocers move toward automation, consumers’ e-commerce preferences could be forever changed. According to a consumer survey by Fabric, 70 percent of respondents said they will continue shopping online until the pandemic is over. Beyond that, respondents estimated that half of their current online spending will stay online.
“The shopping habits in January of 2020, as far as store in-store shoppers versus online shoppers, are never going back.”
“The shopping habits in January of 2020, as far as store in-store shoppers versus online shoppers, are never going back,” Futch predicted.
So, is grocery on the path to move fully online? Unlikely, Futch said. Many shoppers like seeing and touching items like produce and meat before they buy, so it will take “some very smart people” to convince those consumers to buy bananas and cuts of steak on the internet, he said.
Until that happens, set-ups like Alert Innovation’s as-yet-unrealized Novastore concept could bridge the gap. Novastore customers would place grocery orders online at home or on touchscreens in stores. Then, they’d pick their own produce and meats while a robotic system assembled and delivered the rest of their orders. This solves a few problems in one fell swoop, Alert Innovation CEO John Lert said in a 2019 interview with Insider Trends:
Grocers hold onto some elements of so-called experiential retail by letting customers hand-pick certain items. They also avoid creating “competing supply chains” by setting up dark stores or offsite micro-fulfillment centers — Lert called that approach a “path to doom.” Last, grocers optimize space by creating one unified automated store, instead of trying to find space for automated systems in existing store layouts.
The Winners and Losers of Micro-Fulfillment
In a 2019 column for Forbes, retail consultant Britain Ladd wrote about grocery’s e-commerce profitability problem, arguing that micro-fulfillment was “only a part of the solution” and that grocery retailers need a more “holistic” approach.
But with homebound consumers avoiding restaurants and wanting grocery deliveries fast, the strategic importance of micro-fulfillment has grown.
That said, automated micro-fulfillment doesn’t work everywhere — “Can you imagine the astronomical cost if Walmart attempted to put an ASR micro-fulfillment engine on the back of every one of its 4,700 U.S. stores?” Futch asked — and the sector is still in its infancy. Nobody knows yet which model will prove most profitable for different types of retailers, from Takeoff’s standalone centers to Fabric’s back-of-store set-ups to Tompkins’ pop-up solution. (It’s worth noting that some of these companies dabble in multiple micro-fulfillment models.)
According to Hornyak, between the $632 billion U.S. grocery market and other verticals like general merchandise, there will be plenty of opportunities for micro-fulfillment technology providers to win big.
“This market is huge, right?” he said. “There’s room for a ton of players in this space to make a lot of money and be very large companies. We will be one of them, but there will be others as well.”
“We don’t know who will be a big, long-term, recognized name that’s out there forever and who’s going to fall by the wayside.”
But that doesn’t mean everyone will win big, Futch said. Companies that bet on the wrong solutions — or fail to scale fast enough — will disappear.
“There’s no telling who’s going to rise up to be a [supply chain technology giant] Dematic or [automation conglomerate] Swisslog. We don’t know who will be a big, long-term, recognized name that’s out there forever and who’s going to fall by the wayside,” Futch said. “Trust me, there’ll be winners and losers in technology and automation for micro-fulfillment.”
So, the race is on. Fabric is preparing for expansion into Europe and Latin America. Tompkins is growing its influence up and down the supply chain with integration partners such as Bastian Solutions, PULSE Integration, Conveyco, Dematic and BOWE SYSTEC. Takeoff is quickly adding to its customer list, which already includes Albertsons Cos., Wakefern Food Corp. and Stop & Shop LLC. Alert Innovations is ramping up its partnership with Walmart, the United States’ now-second-largest retailer behind Amazon. U.K. online grocery retailer Ocado, which announced in 2018 a partnership to provide micro-fulfillment facilities for Kroger, saw retail revenue spike 40 percent since the beginning of April.
Until now, grocers’ steps toward micro-fulfillment have been slow and calculated. Futch said he hasn’t heard of “a single end user” that has more than two implementations of any given system — and the available information bears that out.
Fabric has one site live and two in progress with Remi Lavy, the second-largest grocer in Israel, Hornyak said via email. Alert Innovation one Walmart micro-fulfillment center live and a second one installed but not operational because of pandemic-related delays, VP of sales and marketing PJ Stafford wrote in an email. Kroger and Ocado’s micro-fulfillment sheds are still in the works. And Takeoff has signed agreements for “significant” numbers of micro-fulfillment centers with Albertsons, Wakefern/ShopRite, Woolworths, Loblaws, MAF Carrefour, Ahold Delhaize, Big Y and Sedano’s, a spokesperson told Build In in an email, though no existing client has more than two.
No matter which firms come out on top, there are likely to be four certain winners. One is consumers who prefer shopping for groceries online. Another is consumers who prefer shopping in-store — aisles could be less congested with third-party pickers. The third is the environment.
“When grocery deliveries come, they have anywhere from three to eight orders,” Hornyak said. “Grocers are going to optimize that last mile from an efficiency standpoint, which is going to mean fewer cars, fewer vehicles per order and less carbon footprint per order.”
And the fourth? Robot enthusiasts.
“We have one customer in negotiation right now that wants to put the store-based system at the front of the store behind a glass wall,” Futch said. “So kids go, ‘Mommy, mommy, when we go to the grocery store, I want to go back to the one with the robot.’”