When examining customer expectations, we have to think about what people want and when they want it – but “where” is also an important consideration. Do I want to go to a shop and pick the groceries myself, drive there to collect a pre-order, or complete a curbside pick-up? Alternatively, I could go online and get the groceries delivered to my doorstep. So customers make up a diverse group that needs to be served in a variety of ways.
And if we talk about the “where”, other factors come into play. We are currently seeing more stores opening up, especially smaller ones in city centres. As more customers want fast delivery, retailers need to be near where most people live so physical stores in a retailer network are essential within the fulfilment operation. As cities are already crowded places, that extra demand is driving up commercial real estate prices.
To cope with these challenges, food retailers are looking for operational flexibility. They need to maximise the use of their existing assets, given the increasing cost of real estate and the lack of available properties. So buildings are now being used for different purposes as retailers look to connect the dots in their networks in more effective ways.
There is certainly plenty of diversity in store formats. Dark stores have been out there for a long time and are servicing the food e-commerce sector but with increasing automation. However, online orders can also be picked using traditional stores, especially in those offering a wide assortment, such as hypermarkets and supermarkets.
What has changed over the last few years is the growth of micro-fulfilment centres (MFCs), which bring e- commerce food operations closer to the customer. We are also seeing the growth of small dark stores run by quick commerce companies to pick smaller orders but with faster deliveries.
So how can retailers improve their network connections and create synergies? Let’s firstly look at case-picking and item-picking operations. Retailers using their distribution centres (DCs) to replenish both central fulfilment centres (CFCs) and MFCs could make their processes more efficient. For example, labour-intensive activities, such as decanting, can be organised centrally to provide economies of scale. Simply put, a better organised retail DC will deliver a more profitable operational model for online groceries as well.
A second example comes from the smaller convenience stores, which do not have an extensive assortment and tend to focus on ready-to-eat and take-away food offerings. Typically, these stores do not contain areas to store pallets or cages so when goods arrive, replenishment must take place straight away. However, retailers could use their CFC or MFC operations for the item-based replenishment of their convenience stores, leading to more volume in their operations, hence greater efficiency.
A third issue to look at is assortment. If a retailer has a large assortment of goods, they can provide the consumer with a large or small shopping basket. But attention should be paid to how these different service levels are organised. For example, could next-day deliveries be arranged in a more economical way through a CFC outside the city centre? For food retailers, it’s all about finding ways to balance the service mix within their operations and physical network. Using customer loyalty data to analyse and predict future shopping baskets will be an important enabler for this.
These days, warehousing operations can exploit a range of automation technologies such as shuttles and autonomous vehicles (AV). However, it can be a challenge for retailers to go from labour-intensive solutions to highly automated alternatives in a single step. Instead, retailers can transition in stages to reap the benefits of new technology. For instance, in a dark store which relies on manual operations, AVs could be introduced to support collaborative picking.
Introducing automation can help businesses deal with labour scarcity while servicing increasing e-commerce orders – and do it in a profitable way. At Vanderlande we can look at a retailer’s operations and suggest where technology can be added in the process to support a viable business case. That way, we can help them become less dependent on labour while helping to deliver on the service promise they’ve made to their customers.
It’s important to remember, when it comes to technology, there’s no silver bullet – there’s no single solution to resolve the challenges faced by food retailers. But we can help our customers optimise their operations by working with them, exploring how they can get the very best out of their networks.
Watch the Vanderlande Connects webinar ‘Food shopping – a taste of the future’.