Online grocery ordering and delivery will likely take on an added urgency according to recent retail industry and media reports, especially with the increasing risk of a potential second-wave of U.S, wide COVID-19 outbreak.

A Denver Post report amplified by Business Network CNBC indicates that grocery retailers need to urgently fix their broken online customer fulfillment capabilities.

Cited in this report is recently published market data from Bain indicating that while online shopping accounted for a little over 5 percent of grocery sales the end of 2019, levels rose to 6.6 percent four months later just after the height of the initial spikes of virus outbreak in the U.S. That same data indicated that if there is a second-wave occurrence, and a vaccine is delayed until mid-2021, consumers would likely continue to utilize online channels for touchless grocery shopping. The online growth numbers are reflected as potentially doubling over the next five years, to upwards of 11 percent in the U.S., 13 percent in France and 14 percent in the United Kingdom.  A middle of the road scenario reflects more modest growth if virus levels remain in a controlled and manageable condition.

Online Shopper

Numbers aside, the more obvious challenge for food retailers is indeed figuring out the realities of what responsive online customer fulfillment processes imply and whether they present a profitable business model opportunity, or an acceptable cost of doing business in today’s predominately dominate online retail shopping experience.

As Supply Chain Matters highlighted in an April commentary, many grocery and food retailers were mostly overwhelmed in online ordering requests resulting in a lost opportunity, as well as leaving a lot of disappointment and frustration for consumers. That included perceptions of Amazon Whole Foods, Target and Wegmans among other grocery retailers. There was too much dependence on existing overworked or under staffed in-store workers, or on third-party online delivery firms such as DoorDash, Instacart, GrubHub, UberEats. These last-mile services providers, and others ,were collectively overwhelmed by added online delivery needs, and at the same time, stung grocery providers with what were considered as expensive fees.

If it were not for the sacrifices and dedication of grocery retail workers themselves, needs for feeding of broader populations during restricted lockdown conditions could have been a far worse outcome.

These experiences have provided retailers added learning on the potential costs for online, many of which are likely a non-starter within existing business and financial realities.

The CNBC report brings forth Bain sourced data indicating that grocery sales have an average operating margin of 2 to 4 percent and can drop to negative 5 or as much as negative 15 percentage points, with the former associated with manual in-store picking handed off to a delivery firm, and latter associated with in-store picking and assumed last-mile delivery performed by the retailer. The other dimension is the added cost of fees charged by online delivery services providers, which are also on the increase. Many logistics services providers have painfully learned that last-mile delivery can be very messy and costly without a definitive industry segmented strategy.

From our lens, on the pick and prepare side. grocery retailers will likely need to take a second look at online fulfillment order picking automation, not in the traditional sense of rather expensive full-scale facility automation and robotics. Rather, consideration should be made for more flexible, worker guided or assisted robotics automation that can be adjusted to different fulfillment volumes or types of deployed facilities, be they dedicated warehouse, dark store, or portion of store. The opportunity is the ability to leverage existing and knowledgeable workers in more difficult order fulfillment activities like produce, meats or singles.

On the last mile delivery side, the reality is one that the overall industry needs a different model, one where the full last-mile cost burden does not fall on the retailer alone. Amazon Prime membership has established a precedence for consumers willing to pay for premium delivery services. Reports now indicated that retailer Walmart is once again planning a rollout of a new premium membership benefits program for online ordering.

The opportunity here are what we believe will be smaller, more regionally located last-mile services providers that can partner with one or multiple retailers to share the cost burden of required last-mile delivery infrastructure costs collectively, without the burden of nation-wide transport infrastructure and administrate overhead costs. Segmentation on grocery and food alone can be an opportunity for added innovation in delivery methods including GPS guided robots or drones, as well as mobile rolling warehouses that serve concentrated urban or suburban areas. Other geographic players have been piloting such efforts and the time has come to make such methods more mainstream with economies of scale.

Indeed, the online grocery business model is one that requires urgency and careful thought. Once again, this can be opportunity lost without concerted, out-of-the box thinking and analysis. Not all SKU’s need to be part of online delivery, and neither does large-scale dedicated  online fulfillment warehouses occupying expensive real estate.



Bob Ferrari

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