A GUIDE TO E-GROCERY FULFILLMENT STRATEGIES AND TECHNOLOGIES

CONTENTS

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E-GROCERY HITS A TIPPING POINT

E-commerce has been a highly disruptive force in the retail sector over the last 10 years, rapidly growing to account for up to 20% of total sales. The grocery sector has largely been immune to this disruption, with only about 3% of grocery spending in the U.S. occurring online in 2019.

That is changing — and quickly. Demand for e-grocery services was already surging prior to the global pandemic that spread in the first quarter of 2020. Coming into the year, many analysts were predicting that e-grocery services had hit a tipping point and the industry was on the brink of the same type of disruption other retail sectors have experienced:

• At the beginning of 2020, online grocery sales were expected to grow by 15%, according to an analysis from Bricks Meet Clicks.

• Online grocery turnover in Europe was projected to see 66% growth by 2023, according to the Institute of Grocery Distribution (IGD).

• Nielsen and the Food Marketing Institute project that consumer spending on e-grocery could reach $100 billion by 2022.

• A research study from Edge by Ascential projected the e-grocery sector will experience a compound annual growth rate (CAGR) of 13% through 2024, increasing total online sales to $162 billion.

Projections such as these, combined with their own growing e-grocery sales, had many grocers planning to automate e-grocery fulfillment. But, before those plans could be executed, the world changed.

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THE IMPACT OF COVID-19

The aggressive growth projections analysts made coming into 2020 suddenly looked timid in light of potential long-term behavior changes resulting from the global COVID-19 pandemic.

The pandemic spiked demand at the end of the first quarter of 2020 and overloaded many e-grocery fulfillment operations. A survey conducted at the end of March 2020 found that 65% of consumers had changed their grocery shopping behavior as a result of the virus. Almost overnight, fulfillment times for e-grocery orders went from same-day to more than a week in some areas.

Changing Behaviors

Now, the billion-dollar question facing grocery operators is how behavioral changes driven by the pandemic will impact the long-term demand for e-grocery services.

While the exact answer to that question will emerge over time and likely vary depending on geography and demographics, grocery executives and analysts alike are predicting behaviors among some consumers will be permanently altered, accelerating the timeline for e-grocery adoption.

Digital research firm eMarketer made the case for lasting behavioral changes in an April 2020 post, The Coronavirus will Cause a Lasting Effect on Grocery Ecommerce, which states that “Ecommerce habits tend to form during periods of intense activity, and when those habits already have momentum, they become even stickier.”

Some grocers believe people who previously avoided shopping online because of product selection concerns have now been converted. Other shoppers’ desire for normalcy will be tempered by nervousness to return to stores and they will become regular e-grocery shoppers.

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Re-evaluating Plans

Many consumers tried e-grocery for the first time during the pandemic and discovered how easy it can be. As one grocery executive shared on a Progressive Grocer webcast conducted during April 2020: “What I have heard most from our new customers in the online space has been, ‘I had no idea how easy this was. Why haven’t I been doing this forever?’”

E-grocery plans made before the virus hit now have to be re-evaluated and accelerated. One small grocery operator shared his new sense of urgency in a recent CNN article: “Before this coronavirus hit, I was thinking if we weren’t in online shopping in three years, it was going to be like selling VHS tapes during the DVD era. Today, if you don’t get in online shopping in the next 12 weeks, I think this thing might leave you behind.”

THE IMPACT OF COVID-19

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Preparing for Automation

In many cases, manual processes had already reached their limits prior to the pandemic. The process is labor - and time-intensive and the market is not willing to absorb the full cost of order fulfillment, forcing grocers to sacrifice profitability to remain competitive in the e-grocery space. However, automation presents some distinct challenges compared to other industries.

Groceries aren’t shippable the way other e-commerce products are; non-grocery orders are typically delivered to the home or picked up at stores. Grocery operators have an existing retail infrastructure to support those processes, but how does automation fit into that infrastructure? Should it be integrated at the store level, set up as a separate operation serving multiple stores or designed as a hybrid of the two strategies?

E-grocery orders are also more complex than e-commerce, which averages one to two items per order. The typical grocery order contains dozens of items and may include non-perishables, packaged chilled and frozen foods, and fresh produce and meats. Managing fulfillment across those multiple product types requires automation technology that enables coordination across automated and manual picking processes.

BALANCING URGENCY AND PERFORMANCE

The spike that occurred during the pandemic exposed the limitations of manual picking and has many grocery operators seeking to automate e-grocery fulfillment as quickly as possible.

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Finding Balance

While grocers are feeling a strong sense of urgency around automation, they have to be careful not to compromise long-term performance. Choosing solutions simply because they offer the fastest deployment times can result in systems that create as many problems as they solve.

However, grocers today can leverage the experience of early adopters and the emergence of standardized e-grocery automation solutions to deploy proven and effective automation within an accelerated timeframe.

BALANCING URGENCY AND PERFORMANCE

Choosing solutions simply because they offer the fastest deployment times can result in systems that create as many problems as they solve.

Swisslog discusses the challenges grocers face as they evaluate their options for dealing with the rapid growth in e-grocery sales.

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E-GROCERY FULFILLMENT STRATEGIES

Hub-and-Spoke

Some grocers are developing centralized fulfillment centers that support multiple stores in a hub-and-spoke arrangement. The automated fulfillment center assembles orders for all non-perishable items and then bulk ships those orders to local or regional stores where they are topped off with perishable items. Completed orders are then available for curbside pickup at the store or delivery to the home.

This approach allows the fulfillment facility and automation system to be designed hand-in-hand and eliminates the space limitations imposed by integrating automation into existing retail locations. Through the addition of a meat counter and other in-store features, they can also be expanded to support centralized home delivery in areas where that strategy is justified by local demographics.

These facilities can also be designed to scale easily to accommodate continued growth by using modular automation solutions that enable a pay-as-you-grow approach. They are inherently capital-intensive and can create an extra layer of transportation between the hub where orders are fulfilled and the store where orders are distributed, potentially limiting the ability to support expedited orders.

The automated fulfillment center assembles orders for all non-perishable items and then bulk ships those orders to the stores where they are topped off with perishable items.

There are a number of strategies being employed by grocers today to introduce automation to improve the speed and efficiency of e-commerce fulfillment.

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In-Store and Bolt-On Store Automation

In many cases, it will make sense for grocers to bring automation directly to the store using available storage space within the store or by expanding the store footprint. Using compact, robotic automation technologies, they can create small fulfillment centers that automate current manual processes for non-perishable and chilled item picking while utilizing store inventory to top off orders with goods not in the automation system – usually fresh and slow-moving products. This allows them to fill complete orders from one location, reducing transportation time and costs.

This scenario will typically represent the fastest entry into the e-grocery automation space even if modifications to the store are required. It focuses on automating the fulfillment of products that represent 80% of sales, avoiding the larger investments required to automate the final 20% of the operation, which significantly extends ROI.

E-GROCERY FULFILLMENT STRATEGIES

In many cases, it will make sense for grocers to bring automation directly to the store using available storage space within the store or by expanding the store footprint.

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Dedicated Micro-Fulfillment Centers

The shifts in the retail landscape created by e-commerce have created opportunities to convert abandoned or underperforming retail outlets into micro-fulfillment centers that serve the same area as a traditional grocery store with automated fulfillment for curbside pickup or home delivery.

This strategy is attractive to pure-play e-grocers who don’t have retail stores that can serve as fulfillment hubs. It also allows grocers with an existing footprint a way to streamline their supply chain to customer flow. It creates the opportunity to optimize the environment by efficiently integrating automated and manual picking.

E-GROCERY FULFILLMENT STRATEGIES

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The Automated Grocery Store

Rather than integrating automation into the back of an existing store, some grocers are experimenting with moving it to the middle of the store, creating a new type of grocery store that combines automated e-fulfillment with traditional shopping.

This is still an emerging concept, but early executions place an automated storage and retrieval system in the center of the store, which holds the majority of the non-perishable items with perishable and specialty items located around the outside of the store.

Shoppers have the flexibility to place their orders in advance or while in the store and can choose to pick their own perishable and specialty items or have the store complete their order for pickup or delivery. It remains to be seen how integrating automation into the shopping environment in this way will impact the consumer experience and how consumers will respond to that new experience. It does provide the ability to automate the fulfillment of staples and other essentials while the shopper shops value-add islands like bakery, cheese stores and fresh fish.

A less intrusive approach is also being piloted in which large kiosks within superstores streamline the pickup of smaller orders. When shoppers place their order, they receive a bar code that is then scanned at the kiosk and their order is presented to them within seconds. While this approach allows shoppers to get in and out of the store quickly, avoiding navigating large stores and going through checkout lines, it is not well suited for the typical grocery order.

E-GROCERY FULFILLMENT STRATEGIES

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Grocery operators have a range of automation solutions to choose from. The best solution will depend to a degree on the selected e-fulfillment strategy, but as with e-commerce automation in general, grocers should seek out solutions that are flexible, data-driven and robotic to ensure they won’t become obsolete as the market changes.

Flexible solutions are those that can scale easily and adapt to changing business strategies and market demand as they occur. Data-driven solutions deliver the intelligence to better manage product flow and have the capability to incorporate machine learning that enables them to self-optimize. Robotic solutions increase the productivity of scarce human resources and drive down fulfillment costs.

While there are multiple niche solutions being developed today to capitalize on the growth in e-grocery fulfillment, such as the kiosk discussed previously, the primary automation solutions being used or considered are either robot-assisted picking or goods-to-person automation systems.

Goods-to-person picking is a concept that has been widely adopted in e-commerce and multi-channel warehouses to enable higher productivity and faster order fulfillment times. Instead of pickers walking up and down warehouse (or, in e-grocery fulfillment, store) aisles to pull orders, the goods-to-person system allows the picker to remain stationary. The automated storage and retrieval system delivers the products to the picker as they are needed to fill orders. Pick time is thus reduced significantly, accuracy is improved, and pickers experience less fatigue.

E-GROCERY AUTOMATION TECHNOLOGIES

FUTURE-READY AUTOMATION

Flexib

le

Data-Driven

Robotic

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Robot-Assisted Picking

Robots are being introduced into grocery stores to automate a variety of functions, from cleaning floors to unloading trucks. They are also being used to support and supplement e-fulfillment, particularly in regard to store pickup.

One approach is robotic-assisted picking in which a robot guides the picker through the store to optimize travel based on the location of the items to be picked and allowing multiple orders to be picked at the same time.

The robot leads the shopper through the aisles in the most efficient manner and even guides the picker on how to package the order, determining which SKUs should be put into which grocery bag based on criteria such as the maximum weight for a bag, crushability and whether items need to be segregated by temperature.

This approach allows robots to be added with minimal disruption and investment, but keeps store associates walking, limiting productivity improvements and ultimately not addressing the aisle-congestion issue grocers face as e-grocery scales up.

Alternately, some retailers are experimenting with creating a goods-to-person picking environment in the store. Automated mobile carts collect items from a warehouse-style storage space within the store and bring them to pickers at pick stations for order assembly within a section of the store. Orders are then topped off with fresh items by the pickers. For stores that aren’t fully utilizing their existing space, this may prove to be an attractive alternative.

E-GROCERY AUTOMATION TECHNOLOGIES

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Shuttle Systems

Shuttle systems rely on a combination of robotic shuttles and lifts to enable products to be stored both horizontally and vertically in bins, cartons or trays. Each horizontal row of the system is served by one or more shuttles, depending on throughput requirements, which travel down aisles between each vertical row to access products deep within the row. The lifts then lower the selected bins or cartons to conveyors, which feed stationary order assemblers.

The density, throughput and capacity of shuttles can meet the requirements of e-grocery fulfillment in hub-and-spoke and dedicated micro-fulfillment applications. However, the large number of moving parts in these systems does contribute to high maintenance requirements, which are amplified in distributed applications such as e-grocery fulfillment. They may require dedicated and trained maintenance specialists on-site to deliver a high degree of availability, which adds significantly to their cost of ownership.

In addition, because the shuttles must travel down aisles to retrieve products, each vertical row of products requires its own aisle. This limits density relative to other solutions that don’t require aisles. This also means each new vertical row of storage added requires its own aisle. While the solution is scalable modularly, the size of each module is larger than with other solutions, which could prove to be a problem in bolt-on or in-store applications.

E-GROCERY AUTOMATION TECHNOLOGIES

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AutoStore

AutoStore is a compact, innovative robot-based automated storage and retrieval system that supports goods-to-person or goods-to-robot picking. Its combination of density, reliability and scalability makes it an ideal solution for virtually any e-grocery fulfillment strategy.

The AutoStore system consists of four main components: a three-dimensional storage grid, storage bins that contain product inventory, a team of robots that retrieve bins, and pick stations that serve as the interface between the operator and the AutoStore system.

The system has low maintenance requirements and each robot can reach any bin in the system, allowing individual robots to be taken off-line for maintenance without shutting down the system. Fast-moving products naturally migrate to the top of the grid to enhance retrieval times.

AutoStore’s unique cube design, in which storage bins are stacked vertically up to six meters high, represents the most space efficient automation system available today.

The architecture of the system also allows a high degree of design flexibility. It can be constructed around pillars and in irregular shapes to take maximum advantage of available space within a grocery store. Unlike shuttle systems, pick station locations are flexible and can be placed anywhere within the grid. AutoStore also provides a high degree of scalability in storage and throughput. Additional storage bins, robots or pick stations can be added at any time without disruption to operation.

E-GROCERY AUTOMATION TECHNOLOGIES

AutoStore offers many advantages that are important for grocers looking for flexible and reliable automation technology.

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In some respects, getting the hardware right is the easy part of e-grocery fulfillment. The software that both manages the automation system and orchestrates activities between automated and manual picking can make or break the success of an installation.

Here, e-grocers can benefit from the experience of other e-commerce companies that have learned first-hand the benefits of an integrated automation control and warehouse management system.

Synchronizing Automated and Manual Processes While e-grocery presents fulfillment challenges in regard to the range of different types of products that must be assembled to complete an order, it’s common within many warehouses to support automation systems with some degree of manual picking.

A modular software platform, such as Swisslog’s SynQ, provides the flexibility to be deployed as a single platform that encompasses WMS and warehouse execution system capabilities or to integrate the platform’s warehouse execution system with the existing WMS. SynQ integrates seamlessly with existing systems to optimize automation.

When operating as the WMS, SynQ provides single-system control and orchestration of all of the processes and systems within the fulfillment center.

ESSENTIAL SOFTWARE CAPABILITIES

Swisslog discusses why having the right software driving your automation is so important for successful e-grocery fulfillment.

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Interfaces should be designed to present necessary information simply, visually and intuitively to minimize training and maximize productivity.

Inventory and Material Flow Management Some automation systems being marketed for e-grocery applications do not have the inventory management and material flow capabilities the application requires. Local inventory management should enable real-time inventory tracking and management of items by shelf life and “best-by” dates.

The software should also enable complete order tracking, including automated and non-automated picking processes, and support easy integration of essential equipment, such as weigh scales.

Maximizing Employee Productivity The goods-to-person fulfillment strategy delivers significant productivity improvements compared to manual processes. However, specific software capabilities can further enhance the productivity benefits of the automation system.

For example, does the software enable orders to be pre-picked during non-peak times and then tracked, stored and retrieved close to pickup/delivery time? Does the software enable easy and efficient exception handling?

The design of the user interface can also impact productivity. Interfaces should be designed to present necessary information simply, visually and intuitively to minimize training and maximize productivity. When interfaces are consistent across different processes, workers can move fluidly between automated and manual picking. While the interface is standardized, the information presented to operators should be customizable based upon the specific application and optimized for ergonomics and simplicity.

ESSENTIAL SOFTWARE CAPABILITIES

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Shortcuts within the implementation process can create long-term problems when they fail to consider all possible use cases and exceptions.

ESSENTIAL SOFTWARE CAPABILITIES

Data Analytics Other features that could be valuable include 3D visualization and business intelligence tools. Three-D visualization presents a simple, holistic overview of the system at any point in time while business intelligence tools provide a dashboard view of KPIs and simplify system health monitoring.

Software Maturity Finally, solutions providers that have established implementation and startup processes proven across multiple applications may be better equipped to help grocers navigate the complexity of e-grocery fulfillment. Shortcuts within the implementation process can create long-term problems when they fail to consider all possible use cases and exceptions.

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We are working with major grocery chains to configure and deploy AutoStore and have successfully configured more than 170 AutoStore systems across various industries.

Swisslog holds the internal expertise and technology for both shuttle and AutoStore systems, the two most popular goods-to-person technologies being applied in e-grocery applications. We performed an extensive non-biased study utilizing both technologies. This study, which used industry-based data and customer input, resulted in the finding that AutoStore is the better choice for e-grocery fulfillment. Its combination of density, reliability and flexibility makes it superior to shuttles in e-grocery applications.

We are working with major grocery chains to configure and deploy AutoStore and have successfully configured more than 170 AutoStore systems across various industries. Through that experience, we’ve developed three standard AutoStore configurations that will meet the needs of many grocery chains regardless of the business model and offer start-up times as fast as six months from contract approval.

STANDARDIZED E-GROCERY CONFIGURATIONS

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In grocery applications, where operators have similar product offerings, the configuration process can be streamlined and simplified through the use of standardized AutoStore configurations sized for the most common fulfillment scenarios.

STANDARDIZED E-GROCERY CONFIGURATIONS

The Power of Standardized Designs The typical AutoStore configuration process involves deep analysis of a year or more of data, including picking transactions, inventory, product dimensions and site characteristics. This analysis allows the AutoStore system to be precisely matched to the application and helps ensure a smooth startup, but it does add time to the process.

In grocery applications, where operators have similar product offerings, the configuration process can be streamlined and simplified through the use of standardized AutoStore configurations sized for the most common fulfillment scenarios.

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STANDARDIZED E-GROCERY CONFIGURATIONS

The standardized systems combine ambient temperature and chilled AutoStore modules in space-efficient designs with order management and material flow managed by Swisslog SynQ software.

- E-Grocery Click&Pick® Micro This AutoStore configuration consists of a 5,000 ft2 (465m2) ambient storage

module and a 2,500 ft2 (230m2) chilled module with operations across the two modules managed and orchestrated by Swisslog’s SynQ software. This configuration is ideal for in-store or bolt-on micro fulfillment centers. The ambient unit supports approximately 9,000 SKUs while the chilled unit supports an additional 3,000 SKUs.

- E-Grocery Click&Pick® Micro Plus This AutoStore configuration includes a 7,000 ft2 (650m2), 14,500 SKU ambient storage unit and a 4,000 ft2 (370m2) 4,000 SKU chilled module with management and orchestration by the SynQ software. This configuration can meet the requirements of in-store, bolt-on, hub-and-spoke and centralized fulfillment centers.

- E-Grocery Click&Pick® Micro XL This AutoStore configuration consists of a 12,500 ft2 (1,160m2), 21,500 SKU ambient storage unit with a 4,000 ft2 (370m2), 4,000 SKU chilled storage unit with management and orchestration by SynQ. This configuration is suitable for bolt-on, hub-and-spoke and centralized fulfillment centers.

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By leveraging Swisslog’s standardized AutoStore configurations, grocers can go live with automated fulfillment as fast as six months from contract approval while enjoying best-in-class automation and software proven to meet e-grocery’s specific requirements.

With e-grocery sales reaching new levels faster than expected, grocers must finalize strategies for supporting same-day home delivery and curbside pickup. While there are multiple options to use the existing store network to support e-grocery fulfillment, automation is required to provide the necessary productivity and speed. Goods-to-person automation systems have been proven in many warehousing applications and provide the density and flexibility required to support e-grocery fulfillment.

While shuttle systems and AutoStore both support goods-to-person fulfillment, high-speed AutoStore systems deliver greater density in most applications, have lower maintenance costs and are easier to scale.

While several integrators support AutoStore, the e-grocery fulfillment experience and software maturity of the integrator can have a major impact on the success of an implementation. Working with an experienced integrator, with automation control integrated into the WMS/WES platform, helps ensure e-grocery fulfillment automation is implemented in the most efficient manner possible and delivers the desired performance.

A CLEAR PATH FORWARD

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About Swisslog Logistics Automation

We shape the future of intralogistics with robotic, data-driven and flexible automated solutions that achieve exceptional value for our customers. Swisslog helps forward-thinking companies optimize the performance of their warehouses and distribution centers with future-ready automation systems and software. We are the world’s leading integrator of AutoStore with more than 170 deployments worldwide. Our integrated offering includes consulting, system design and implementation, and lifetime customer support in more than 50 countries.

Swisslog is a member of the KUKA Group, a leading global supplier of intelligent automation solutions with more than 14,000 employees worldwide.

For more information, contact logistics@swisslog.com.

swisslog.com/e-grocery

A CLEAR PATH FORWARD