Is Automation Worth the Investment?

Getting shoppers to buy additional groceries online may require more than competent robots.

December 13, 2018

ALEXANDRIA, Va. – Robots may fill online orders and promise to increase consumer demand.  But while automation will help retailers reduce operational costs, its greatest challenge is getting Americans to buy more of their groceries online, according to report at Grocerydive.com.

By using robots to prep online orders and testing new frontiers, such as driverless delivery, supermarkets are hoping that lower prices and faster fulfillment will boost online shopping. But will costly robots really help make that happen? 

So far, Kroger has taken the deepest dive into automated fulfillment. Partnering with Ocado, the British e-grocer, Kroger plans to build massive automated fulfillment warehouses. Its first one cost an estimated $55 million to construct, and 20 more locations are planned for strategic points across the country.

Ocado promises to deliver on price, speed and experience, but it takes two to three years to build each automated warehouse. By the time the first facilities are up and running, competitors will have evolved their own technology.

It’s hard to determine how Kroger will boost sales with Ocado's technology and not simply cannibalize in-store sales, according to Neil Saunders, managing director with GlobalData Retail. "How is Kroger going to use this to drive sales?" he said. "It's clear how they're going to use it to drive cost, but to drive the top line, it's still not clear how they intend to do that in a financially successful way."

It's also uncertain how Ocado's warehouses will interface with Kroger stores and customers. Kroger plans for the warehouses to supply orders for store pickup. This addresses stock levels, but it also raises questions about efficiency since this would add another logistical step to the process. Also, because its fulfillment facilities are huge, Ocado must build them outside of large population centers, which makes on-demand orders more of a challenge.   

Meanwhile, Albertsons has decided to pilot a 10,000-square-foot micro-fulfillment center at one of its stores. The unnamed location will open early next year in partnership with Takeoff Technologies, an e-grocery solution that uses automation to fill orders in micro fulfillment centers.

Automated fulfillment promises to be efficient but getting shoppers to buy their groceries online doesn't guarantee they’ll buy more groceries. It simply means they’ve switched channels. To profit, technology must bring in new customers and get them to buy more groceries within a retailer’s omnichannel ecosystem. Whether that will happen is not clear. 

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