Is micro-fulfilment the answer to super-fast delivery of groceries?

The logistics sector is seeing the rise of same-day deliveries, with such services becoming more and more familiar to people, especially in North America and Asia. Particularly, food and groceries shopping is increasingly moving online, and being close to customers has become more important than ever. If going to the supermarket used to be a social experience, now the Saturday shopping with family is gradually being replaced by the daily tap on a mobile app or website.

US retailers such as Walmart and Target have been offering same day options to their customers. It is estimated that the US online grocery market could be worth around $27bn by 2025, so it is unsurprising that these companies all want a slice of the not so metaphorical cake (preferably fast).

Other examples, even more mind-blowing, come from China, where Alibaba can deliver groceries from its Hema store in as little as 30 minutes for customers within three kilometres ordering through its phone app. One of its rivals, Meituan, offers the same service having announced that it was tapping into this market in H1 2018.

From a logistics point of view, the provision of same-day deliveries, or in some cases same hour, is enabled by micro-fulfilment, a strategy that uses small-scale warehouse facilities or enables stores to double as distribution centres. Its network of nearby stores is what allows Alibaba to fulfil grocery orders in around half an hour. It has also been reported that Target’s mission to re-model 1,000 stores by the end of 2020 is aimed at speeding up deliveries in local markets.

The micro-fulfilment centres are located in accessible urban locations where costumers are more likely to reside and work, especially younger and tech-savvy generations using apps and websites to do their online shopping. Thus, while in the past fulfilment and distribution centres used to be placed outside urban areas and in rural and remote locations, now the opposite is true. Retailers are moving inward towards big cities rather than outward outside of them, as it was the case in the past.

In some instances, micro-fulfilment centres will be dedicated to the online channel and be fulfilment only, others will make use of existing but underutilised space whether that’s in stores or other buildings, such as offices.

However, the ship-from-store strategy needs to take into account that store workers are not warehouse workers and might be unable to keep track of SKUs while serving customers. In response to this, micro-fulfilment centres and in-store distribution centres might have varying levels of automation, with some using more basic solutions such as automatic conveyor belts, and others adopting more sophisticated solutions. For example, Tel Aviv-based CommonSense Robotics is building automated, multi-tenant micro-centres in urban areas, claiming that they are less than 6,000 sq ft.

Automated micro-fulfilment centres might not be a solution that all retailers would want to consider. A number of factors need to be taken into consideration, including budget and geographical location: according to a Interact Analysis report, building a micro-fulfilment automated solution would cost approximately $4m, with capacity of approximately 10,000 sq ft and around 15,000 SKUs. This represents the number of SKUs in a typical Tesco convenience store, but it’s only a quarter of the SKUs found in a Kroger’s in the US.

Micro-fulfilment could worsen the situation for drivers in the context of a gig economy. It is possible that, with the concept of same-day deliveries becoming increasingly widespread, drivers will be placed on more temporary or zero-hour contracts and might be put under increasing pressure to meet unrealistic targets.

There might be scope, however, for automated deliveries carried out by robots and drones. Furthermore, with the increase of people doing their grocery shopping online, the roll-out of micro-fulfilment centres is likely to make super-rapid delivery services more common. Additionally, they might prevent the worsening of traffic and pollution in big cities and, potentially, partially address the issue of shops becoming empty due to prohibitive costs of rent or lack of sales.

Source: Transport Intelligence, February 13,2020

Author: Caterina Ciccone