On the supply side: the new micro-fulfillment centers retail supply chain strategy

Amazon, Walmart, Walgreens, and third-party grocery stores like Instacart are investing in micro-fulfillment centers to speed delivery times, lower last mile costs, and bring products closer to consumers. The investment comes as e-commerce sales are expected to reach around 35% of total sales by 2023, according to Edge Retail Insight, a subsidiary of Ascential.

The marketing research firm predicts that the share of in-store sales will decline to 62.4 percent by 2025. This year, in-store sales will account for about 70 percent of total global sales.

“The global pandemic has accelerated the adoption of online retail across all key categories,” noted Deren Baker, CEO of Edge by Ascential. “With a record number of store closings since the pandemic epidemic, in-store retail is now at a tipping point. However, there is still a lot of value in the brick-and-mortar model – one need only look at Alibaba and Amazon’s investments on Main Street to attest to this. But retailers and suppliers need to invest in a range of new capabilities to drive successful actions in the future store, which will have very different characteristics from the model that operated until around 2010.

Supply chain insiders say micro-fulfillment centers are a critical part of next-day and same-day delivery. Retailers are using their physical assets as middleman distribution centers with dark stores and turning some retail stores and clubs into automated warehouses. Ascential reports that retailers are also likely to reallocate their store space to accommodate more online orders. The report indicates that up to a third of the retail space could be turned into distribution centers.

Walmart earlier this year announced plans to build micro-fulfillment centers equipped with automation. Tom Ward, senior vice president of technology and last mile operations at Walmart, said the retailer was building a dozen micro-fulfillment centers (MFCs) in stores, including store 100 on Walton Boulevard in Bentonville. . The down payment is part of Walmart’s $ 14 billion planned spending this year.

“Our customers love the speed and convenience of pickup and delivery, and we are committed to finding faster ways to serve them, which is why we are increasing the number of stores that will also serve as market distribution centers. We’re already planning dozens of locations, with many more to come, ”Ward said.

Ward said the highly automated MFC would allow more orders to be taken at a faster speed. He said the micro-fulfillment center is a compact, modular warehouse built into or added to a store. In addition to fresh and frozen items, an MFC can store thousands of items that the retailer knows customers want the most, from consumables to electronics. The end goal is to process the order within minutes from the moment it is placed. The order will then be picked up by buyers or shipped for delivery by third party drivers or Walmart home.

Another advantage of automated MFC is that a single center can facilitate multiple stores, thus creating more efficiency. A big difference to Walmart’s MFC strategy is that the locations are for busy stores that require more manpower to prepare orders. The MFC is also located closer to customers, reducing last mile costs.

Annibal Sodero, supply chain professor at Ohio State University, said Walmart’s shift to more automated use of MFCs is about last mile efficiency, which can account for 27% to 30% of logistics cost. total. He said Walmart has mastered the inferior mode of the delivery warehousing system moving fully loaded trucks from regional distribution centers to stores. Yet, as more and more sales move online, this system has become archaic in trying to deliver same day. He believes more retailers, corner stores, 7-Eleven stores and even Starbucks, will become de facto lockers for online retailers looking to reach rural areas.

A report from CV Insights said small retailers and retail intermediaries are also turning to micro-fulfillment. Instacart recently partnered with Fabric to enable food retailers in the United States and Canada to leverage micro-execution solutions through Instacart’s system and personal buyers with Fabric’s software and robotic systems. The companies said they would use the micro-fulfillment centers to fill online grocery orders from retailers placed through the Instacart marketplace or through a grocer’s Instacart e-commerce site. In addition to faster fulfillment, MFCs would allow retailers to handle more online order volume and accommodate customers’ full groceries, ranging from packaged groceries, commodities and fresh produce. deli meats, frozen foods and alcohol, according to Instacart.

The partnership uses a mix of Instacart, Fabric and Retail employees who will manage the MFCs, depending on location and retailer. Once the orders are packed, Instacart personal shoppers will deliver the orders to customers or bring them to transit areas for curbside pickup.

“Our next-generation order fulfillment initiative combines our strong technology suite and our dedicated robotic solutions buying community to provide retailers with even more innovative ways to compete and serve their customers online. This work will also help reduce some of the things that complicate in-store shopping for Instacart shoppers, such as crowded store aisles, out-of-stock items and long lines, ”said Mark Schaaf, Director of Instacart technology.

Clint Lazenby, co-founder of Legacy Retail at Rogers, said Instacart is a force to be reckoned with. He said the partnership with Fabric for micro-execution is timely as Instacart continues to grow its online sales in pursuit of Walmart. Fabric is also one of the partners that Walmart is working with on its MFC initiative.

“Our software-driven robotic and modular solution gives food retailers the flexibility to create the order fulfillment solution that best fits their business needs. With Instacart as a partner, we see a huge opportunity to integrate our products and services into Instacart’s e-commerce solutions to deliver a compelling service offering to grocers, ”said Elram Goren, CEO and co-founder of Fabric.

Walgreens plans to introduce 11 new micro-execution centers by the end of next year. The move follows Walgreens’ acquisition of the pharmaceutical technology development and delivery business known as iA.

The CV report says that as the pandemic abates or another wave of lockdowns persists, e-commerce will remain crucial for the retail industry, and micro-execution is likely to increase.

“We will see smaller facilities appearing closer to the consumer instead of larger facilities in more rural areas. As the face of retail changes before our eyes, supply chains must also adapt, and that’s one of the many ways they are doing it, ”the report notes.

Retailers said COVID-19 drastically accelerated the advancement of online grocery shopping by three years or more. And while retailers like Walmart and Target said second-quarter online sales slowed as in-store traffic improved, the consensus is that online grocery shopping will remain high for now.

NielsenIQ noted that as more shoppers turn to online grocery shopping, the payoff for retailers and consumer packaged goods (CPGs) companies is approximately $ 58 billion. The market research predicted that CPG online food and beverage sales in the United States would reach between $ 94 billion and $ 109 billion, up from $ 66 billion in 2020 and $ 31 billion in 2019. NielsenIQ estimated that more than 20 million new CPG customers entered the online arena in 2020, increasing the share of households buying online to 32% for food (compared to 19% in 2019), 60% for non-food ( vs. 45% in 2019) and 40% for the global GIC vs. 27% in 2019.

Editor’s Note: The offer side section Talk Business & Politics focuses on businesses, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is operated by Talk Business & Politics and sponsored by Propak Logistics.

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