Online grocery sales continue on a fast-track growth path. Major supermarket brands must meet the challenge of cost effective and productive fulfillment methods, which typically begin at the warehouse. But filling online grocery orders and getting them ready for quick last-mile delivery is highly labor intensive, not to mention costly for an industry that operates on razor-thin profit margins.
So grocers such as AholdDelhaize, Albertsons, Kroger, and Walmart, are trying various approaches: 1) large warehouses in fewer locations; 2) small warehouses in more locations; 3) third-party delivery services like Instacart and Shipt. It will take a year or two to determine which of the different strategies will win out. But one thing is certain—U.S. consumers in metro areas are adopting online grocery shopping that gives them convenience and immediacy, like other mobile order and pay transactions. Grocers should capitalize on this quickly expanding sales channel.
A Wall St. Journal article discusses more on this topic, which is excerpted below:
Food retailers are making big bets on small warehouses to bulk up their growing delivery businesses, as supermarkets try different approaches to get groceries to customers more efficiently.
Albertsons Cos., Walmart Inc. and other chains are building small fulfillment centers near existing stores and customers to quickly fill orders placed online. More grocers are choosing this strategy over the larger, remote distribution centers that Kroger Co. and Koninklijke Ahold Delhaize NV’s Peapod division are building to make deliveries over wider areas.
“We have a broader assortment of fresher items, and we are closer to the customers,” said Narayan Iyengar, senior vice president of digital and e-commerce at Albertsons. The owner of the Safeway and Jewel-Osco chains is adding small fulfillment facilities at two stores in South San Francisco, Calif., and San Jose, Calif., in partnership with Takeoff Technologies Inc., which builds automated warehouses. Albertsons said it is establishing more of these 10,000-square-foot distribution centers, which each cost about $3 million to build.
Overview by Raymond Pucci, Director, Merchant Services at Mercator Advisory Group