Online grocery sales are powered by a complex interplay of digital commerce, brick and mortar and warehouse operations with a growing number of fulfillment options to support customer preferences. These include the nearly ubiquitous buy-online-and-pickup-in-store (BOPIS), buy-online-and delivery-to-home (via the retailer’s operation or a third-party), or buy-online-and-ship-to-home – something typically done by a parcel carrier.
Given the nature of grocery SKUs, no other sector is more overtly challenged by the rapidly evolving opportunities involved. This is despite the fact that the fulfillment process for e-commerce as a whole is highly refined: today’s warehouses and distribution centers (DCs) are models of effectiveness, capable of storing product, picking the items for each unique order, and packaging and shipping them with awe-inspiring speed, efficiency and accuracy. Just as importantly, with innovations like automated storage and retrieval systems (AS/RS), robotic pickers and automated mobile robots (AMRs) are constantly improving and enabling retailers to overcome long-standing challenges, among them the demand for greater throughput and the difficulty of attracting and retaining warehouse employees.
Fortunately, these innovations are also now being used to address food retailers’ in-store inventory needs and the expanding ecosystem of delivery models for online grocery shopping.
The online grocery shopping ecosystem is robust
This expanding ecosystem reflects the fact that online grocery shopping, while a more recent development than other forms of e-commerce, is already crucial for food retailers’ success. Yes, online grocery sales decreased slightly in recent months – predominantly because of smaller orders caused by diminishing consumer buying power – but the sector is very robust.
The Bricks Meets Click/Mercatus Grocery Shopper Survey released in January makes this clear. Annual online grocery sales amounted to $95.8 billion in 2023, a slight decline from the $97.6 billion spent in 2021, and a dip attributable to a decline in buy-online-and-ship-to-home orders. In contrast, sales volumes for delivery-to-home and pickup-in-store are higher today than they were in 2021.
Just as importantly, e-commerce adoption in general continues to increase even as consumers return to the brick-and-mortar stores they love. The United States Census Bureau’s most recent Quarterly Retail E-Commerce Sales Report confirms that most Americans are now omnichannel shoppers. Estimated retail sales in the fourth quarter of 2023 increased 2.4% from the fourth quarter of 2022, but e-commerce sales increased by an estimated 7.2% in the same period.
Adoption of online grocery shopping, something which offers a great benefit for today’s time-constrained consumers, will likely only increase. To address this reality, sellers must have the right warehouse operations in place, something that requires grocers and mass food retailers to first consider the different warehousing needs and dimensions of in-store and online operations.
Importantly, grocers and food retailers must also carefully consider the various approaches to e-commerce fulfillment that are now available. This includes the fulfillment of online orders from a separate warehouse which may also serve in-store inventory needs, fulfillment by individual in-store pickers who in essence shop for customers, fulfillment from robots in a dedicated, backroom e-commerce section, and micro-fulfillment centers that can serve one or more stores, but which focus solely on online orders.
In-store and online shopping requires different approaches to warehousing
As grocers and mass food retailers, including large retail chains that offer grocery departments, move to address increased demand for online alternatives, the need for purpose-built solutions will only increase. Key differentiators and details that must be considered include:
● Never forget the storage and movement of food is different. The nature of food – items that are ambient, chilled, frozen, and fresh or perishable – must be factored into all warehousing strategies, including those for in-store and online purchases. When assessing warehouse options, retailers and grocers must also differentiate not only between online orders and in-store shopping, but also the different types of items handled. For example, the fulfillment of online orders that include frozen foods must include their segmentation and temporary storage until they are either picked up by the customer or delivered or shipped to them. Alternatively many fresh items cannot be chilled or frozen and chilled items must not get too warm or freeze.
● In-store warehousing typically occurs at the case level with few SKUs. At grocers’ warehouses and at their largest stores, incoming pallets are usually composed of single SKU cases. These are then processed into pallets that include cases of the SKUs a particular store needs – and in some cases are packaged into store-friendly pallets that group SKUs based on the aisle where the items are located, enabling employees to quickly stock shelves. Robotic pickers and palletizing AMRs do this kind of work exceptionally well, making warehouse automation particularly valuable, not only because of the efficiencies gained, but also because cases can be heavy and cause workplace injuries and employee churn.
● Online warehousing typically occurs at the individual SKU level. In contrast to in-store warehousing, all approaches to the fulfillment of purchases made online require the picking of individual items. In a typical e-commerce fulfillment operation AS/RS are often a natural fit for highly variable orders and in purpose-built facilities with sufficient vertical space and strong enough floors, they also often offer the highest storage density, speed and efficiency – especially with dry goods that do not require the additional handling and safeguards associated with frozen, chilled or fresh items. Such systems are more complex though and require significant capital investment to build and deploy. It's also noteworthy that the most successful e-commerce grocery fulfillment strategies to date have augmented and supported existing in region brick-and-mortar strategies as it is difficult for stand-alone e-commerce to be successful without a physical store presence.
● Warehouse automation is not automatic. The advanced automation increasingly taken for granted in modern warehouses and DCs involves complex systems that require maintenance and the support of knowledgeable, in-house experts. This includes environments in which fulfillment is completed by robots in a dedicated, in-store e-commerce section or by micro-fulfillment centers that can serve one or more stores. While they offer strong throughput, complex systems like AS/RS simply require more technical support - and it’s simply not economical to have a maintenance technician on hand in every store. AMRs require far less maintenance and can be purchased through a Robotics-as-a-Service approach, which is one of the reasons that they are often a first step for grocers that want to stock, pick and sort items in-store for online orders. If one AMR has a problem, another can be switched into its place. This ensures store operations aren’t impacted while a technician makes repairs.
● The warehousing operation should enhance the shopping experience. In time, the fulfillment strategies for online grocery purchases will evolve, but for the foreseeable future any warehousing and fulfillment strategy must not detract from the brick-and-mortar shopping experience. Dark stores that only serve online fulfillment and the creation of pick-up centers – ultimately DCs that use the latest warehouse automation – are options that will increase as the popularity of online grocery shopping grows. Already, many food retailers are seeing an uptick in complaints from shoppers who find themselves using the same aisles as employees who are picking online orders, detracting from the in-store shopping experience patrons value.
These are but some of the many factors that should be considered as grocers weigh how to address the different, and sometimes competing warehousing needs associated with in-store and online operations. Perhaps most importantly, they should actively seek out partners who insist on addressing the numerous questions that must be explored when creating any modern warehouse strategy or system.
