CEO of retail technology company StrongPoint.
2020 was the year online grocery shopping took a massive leap into the future. Bain & Co estimates that the market, boosted by the coronavirus pandemic, has jumped up to five years ahead in terms of customer demand. What was once a luxury for urbanites has been transformed into a lifeline for millions.
Processing online orders is expensive, as grocery retailers know only too well, so making it profitable is an industry-wide conundrum. Much attention has been paid to the advancements in robotics, and many industry commentators are saying the future of the online grocery business is automation. But is it that simple?
I’m always amazed when I see a video of an automated warehouse. Yet, as a McKinsey consultant for 12 years, it was my job to give candid advice — even if it went against the grain of the prevailing views. If I was advising the CEO of a grocery retailer, I would say automation is a solution for a specific customer segment but not the majority.
Why? Although automation is expensive, it does help grocery retailers offer hyper-fast fulfillment services. When I say fast, I mean delivered within hours. But the demand for such services is concentrated in big cities with young digital natives where the customer base is willing to pay a premium price for a premium service. This segment is booming but remains a minority of any grocery retailer’s online customer base.
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The coronavirus pandemic has boosted demand for online groceries in general, including but not limited to hyper-fast deliveries. According to our insights, as a retail technology company operating in the grocery space, there is also fast growing demand for “slower ” delivery services that come at a lower cost to both the customer and grocery retailer.
Investing substantial amounts of capital into automation makes business sense in many situations, but grocery retailers also need to find scalable solutions that enable them to capture market share outside of the demand for hyper-fast deliveries.
“Picking” is the process of items being picked from a grocery store or dedicated fulfillment facility to satisfy online orders. During the pandemic, I observed that grocery retailers that had instantly scalable picking solutions were the ones that were able to meet the rapid increase in customer demand. Fully automated providers, on the other hand, ran out of capacity as their facilities took time to scale. In this instance, you could say it was the humans who came to the rescue of the robots.
This isn’t to say that automation is something I would not recommend. I definitely would and advances in technology are already increasing their competitiveness. Not even the most advanced automation solutions are able to pick all the items that you would find in a normal grocery shop so they need help from manual pickers to fulfill entire orders, but this is changing as the technology progresses at an incredible pace.
Manual picking has suffered a reputational blow in recent years, maybe because robots are more fun to watch. But the focus on automation has perhaps diverted attention from an additional and complementary opportunity that was hiding in plain sight: efficiency gains in manual picking powered by technology. There have been substantial advancements in this area, though with far less attention.
For example, we are now seeing productivity levels of manual picking that just a few years ago were unimaginable. One case study of a grocery supermarket noted that someone picking individual items off shelves to fulfill orders can pick in the range of around 60-65 items per labor hour. Yet we are seeing store workers augmented with technology — including wearable devices and purpose-designed trolleys for hyper-efficient picking — that far surpass industry expectations.
In Scandinavia, where manual workers enjoy high average salaries compared to other countries, some of our customers’ store workers are achieving productivity levels at many multiples of industry standards (averaging at ~240 items per labor hour across all product categories). And this is in stores organized for customer experience, not picking efficiency. Picking in purpose-built grocery warehouses (what are known in the industry as “dark stores”) is even more efficient.
However, any system that is heavily reliant on huge numbers of staff is going to have intrinsic challenges that an automated solution does not. That means that grocery retailers need to pay more attention to their entire business operations and ensure they are working at high performance levels. The more the company is dependent on a large number of employees, the more it needs to be laser focused on operational excellence.
With the added boost of demand from the coronavirus pandemic, the question is not whether a grocery retailer should have online offerings or not, but how to provide the most efficient, cost-effective and profitable solution to serve its online customers. Grocery retailers are beginning to leverage the power of fulfillment technology with the flexibility and scalability of manual picking.
If your number of orders far exceeds the capacity of your store (or severely impacts customer experience in the store), it may be time to consider investing in a dark store — with or without automation solutions — to provide added capacity. For those that are already investing in automation and serving urban markets, dark stores are an efficient way to cope with unexpected spikes in demand.
Stretching picking productivity potential means grocery retailers can do more with less. This is a fast-growing space, but perhaps still under the radar — for now. I believe scalable solutions at the fraction of the cost of robots might make for a surprising alternative, complement or even competition, especially for those players that cannot afford the investment needed for a fully automated solution.
Grocery retailers have huge opportunities to meet the massive growth in online demand and the solution is already in their stores and dark stores: their own staff, augmented with technology to boost their picking potential. As Elon Musk famously said about automation: “Humans are underrated.” An augmented workforce working in parallel with automation is likely the future of the online grocery industry. But augmented fulfillment solutions are perhaps already giving the robots a run for their money.