Grocery Delivery Tests Micro-Fulfillment Centers

The aim is to make grocery delivery even faster. 

January 28, 2020

ALEXANDRIA, Va.—Some grocers are assessing micro-fulfillment centers filled with robotic equipment that can churn out as many as 4,000 orders a week, while fitting into the back of a store or urban location where space is limited, the Wall Street Journal reports.

The retailers want to determine if automation can help reduce costs and speed up deliveries, and they are looking to a new set of startups to make e-commerce fulfillment more efficient within a small footprint.

One of those is the U.S.-Israeli robotics startup Fabric, which builds automated micro-fulfillment centers for retail customers. This quarter, the company is starting construction on its first U.S. fulfillment center for an unidentified regional grocer in the Southeast. The center will be about 10,000 square feet, according to Steve Hornyak, chief commercial officer of Fabric. Typically, regional distribution centers serving grocery chains are 600,000 square feet or more. Fabric expects to have as many as six smaller fulfillment centers under construction for U.S. grocery stores this year.

While online grocery orders account for a fraction of the market, food and beverage is the fastest-growing U.S. e-commerce segment, reports research firm eMarketer, with an estimated $22.63 billion in sales last year. That number is projected to nearly double by 2022, to $40.04 billion.

That anticipated growth has food retailers rushing to upgrade their operations as they manage the tasks customers once did themselves, from selecting groceries to taking them home. But retailers face big challenges. They are weighing short-term strategies, such as assigning in-store employees to pick online orders against major investments in large distribution centers that use robotics.

Micro-fulfillment centers provide another, potentially less costly option. Takeoff Technologies Inc.’s 10,000-square-foot systems cost about $3 million and can be up and running in about four months, said Laura Scott, chief operating officer for Takeoff. With about a dozen employees on hand, the centers can hold and manage some 15,000 different products. The company has five sites in operation with customers, including Albertsons, Wakefern Food and Stop & Shop, and there are more in the works, she said.

In recent years, established U.S. online grocers, such as Ahold Delhaize’s Peapod unit and New York-based FreshDirect, have invested in large, highly automated facilities. Kroger, the leading traditional U.S. grocery chain by revenue, plans to build up to 20 largely automated warehouses through a partnership with the United Kingdom’s Ocado Group. After starting as an online-only grocery, Ocado now licenses its technology to supermarkets around the world, with agreements to build between 40 to 50 warehouses worldwide. The smaller Kroger facilities are expected to range in size from 20,000 to 300,000-plus square feet.

Tim Steiner, CEO of Ocado, said smaller sites don’t benefit from economies of scale and are better suited for convenience-store type services that offer a limited product selection at a higher price point. Although micro-sites are closer to the customer, “the potential savings there in delivery fees are a fraction of the incremental costs of operating it,” Steiner said. Operating large-scale, heavily automated facilities “means we can get groceries into a customer’s kitchen for less operating costs than our competitors can manage a store.”