Micro-Fulfillment And The Changing Needs Of Grocery Retailers


H-E-B, a leading grocery retailer in the United States, has made an exciting announcement regarding the inauguration of a state-of-the-art micro-fulfillment center spanning 55,000 square feet. This fulfillment center is seamlessly integrated with an H-E-B store situated in Plano, Texas.

This remarkable facility marks the first-ever e-commerce fulfillment center in North Texas for H-E-B, a renowned chain encompassing over 420 stores across Texas and Mexico, with impressive sales of $34 billion recorded last year. It serves as the sixth in-store fulfillment center that H-E-B has implemented to meet the growing demands of customers seeking online grocery services.

In order to realize this innovative project, H-E-B has forged a strategic partnership with AutoStore, a leading company specializing in cube-based automation and robotics. The micro-fulfillment system provided by AutoStore has been skillfully incorporated within H-E-B’s fulfillment center, ensuring optimal efficiency and customer satisfaction.

This significant development from H-E-B follows in the footsteps of Walmart, which recently announced its continued expansion in the realm of automation to meet the demands of online orders through market fulfillment centers (MFCs).

Walmart has successfully established two MFCs, located in Bentonville, Arkansas, and Salem, New Hampshire, respectively. These cutting-edge centers employ automation solutions provided by Alert Innovation, a company acquired by Walmart in 2022. It is anticipated that Walmart will gradually introduce additional MFCs in select stores, although the exact number has not yet been disclosed.

Walmart’s market fulfillment center strategy closely mirrors that of H-E-B and their esteemed partner, AutoStore. Both retailers utilize their stores as fulfillment centers, with their respective automation systems adeptly managing thousands of products found on their store shelves. These encompass a wide array of items, ranging from household essentials like paper towels to delectable jars of peanut butter. Walmart’s integration of the Alert Innovation system further allows for the efficient storage and handling of various items, including canned goods, fresh fruits, and vegetables.

Industry reports indicate that the global micro-fulfillment center technology market is expected to reach a staggering value of $10.85 billion by the year 2030, underscoring the increasing significance of such advancements in the retail sector.

The Rising Importance of Technology

Since my previous article on micro-fulfillment in 2022, it has become evident that retailers are increasingly recognizing the necessity of adopting technology to enhance the efficiency of their operations. They are confronted with a shrinking labor pool available to fulfill online orders within warehouses, compounded by the substantial costs associated with labor. Consequently, retailers are diligently seeking automated solutions to address these challenges. However, one primary obstacle hindering widespread automation adoption is the substantial capital investment required, often reaching millions of dollars, which proves prohibitive for many retailers.

Further complicating matters is the introduction of ChatGPT by OpenAI, which has sparked a race among retailers to explore and implement artificial intelligence (AI) solutions across their operations and supply chains. The potential benefits and cost savings that retailers may accrue from such AI advancements are yet to be fully determined.

Based on my professional experience, I would recommend that retailers explore the utilization of advanced software such as that offered by 345 Global. Their AI-powered integrated store planning, e-commerce, and digital twin technology provide retailers with a comprehensive solution. Leading retailers have realized the immense value in leveraging cutting-edge virtual reality and augmented reality capabilities for planning and operations. Additionally, digital twin technology has emerged as one of the fastest-growing areas of investment in the retail industry.

Moreover, retailers are grappling with the aftermath of the COVID-19 pandemic. During the height of the crisis, a substantial number of consumers turned to online grocery shopping and delivery services to avoid crowded supermarkets. This surge in online grocery ordering and delivery prompted retailers to anticipate a sustained decrease in in-store customers even after the pandemic subsided. However, as COVID-19 restrictions eased, many consumers returned to physical stores, resulting in a decline in the percentage of online orders. On average, online grocery sales currently account for just 11.4% of total grocery sales.

Given these transformative changes, grocery retailers find themselves in the challenging position of managing their existing operations while simultaneously navigating the imperative for business model adaptations that embrace technology. However, many retailers may lack the resources or expertise to effect these changes independently, necessitating partnerships with third-party fulfillment companies to expand their business models.

The Evolving Landscape of Fulfillment

As a consultant catering to the needs of grocery, big-box, and specialty retailers, I am frequently approached by retailers seeking guidance on transforming their businesses. There is no one-size-fits-all solution, as each retailer operates within a distinct category. Strategies employed by a retail giant like Walmart vastly differ from those suitable for a specialty retailer such as Ulta Beauty.

Additionally, it is essential to acknowledge that retailers within the same category, such as grocery retailers, possess unique capabilities. What may prove effective for one grocery retailer may not necessarily yield the same results for another.

However, there is one area within grocery retail that I have been able to consistently address for clients and share across the industry: online and curbside grocery fulfillment.

Considerable changes have transpired since 2022. Rather than anticipating that 30% of a retailer’s grocery business would shift online, industry experts now project that online sales will constitute between 15% and 20% of a retailer’s total business by 2030.

Even with this revised projection, grocery retailers face substantial challenges. For instance, customers have expressed frustration with the presence of “pickers” maneuvering through aisles, pushing carts, and retrieving products to fulfill online orders. As online sales continue to surge, retailers will be compelled to increase the number of pickers within their stores, potentially exacerbating customer dissatisfaction.

Therefore, I maintain that installing micro-fulfillment centers either as an expansion attached to existing stores, as stand-alone MFCs grouped with other stores, or within stores themselves, as exemplified by H-E-B and Walmart, remains the most favorable strategy.

In the event that online sales do not surge as anticipated, it is conceivable that third-party delivery companies may convince numerous grocery retailers to outsource their entire online business operations, including fulfillment and delivery, under their own brand. This approach would enable retailers to eliminate third-party pickers from their stores, thereby restoring the focus on serving their valued customers directly.

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