Building A Flexible Grocery Last Mile Fulfillment Network
Ethan Grob, Director of Last Mile Strategy & Product, Kroger
Estimates show that online grocery adoption will reach 55 percent in the US by 2024, following the accelerated engagement as a result of COVID-19. That’s 116 million adults regularly choosing e-commerce options for their grocery needs; billions of orders every year. That’s 116 million customers demanding to get what they want, when they want it, and on their terms.
A traditional marketing education would teach you how to segment those 116 million American adults, allowing you to best reach each group with your offering. The reality is, while demographics are more static, behaviors are not. Week after week, the needs of these customers may change; what they want and when they want it may look different with every single order. However, their expectations will not. The retailer must find a way to meet the customer on their terms.
Customers are increasingly opting for convenient, no-contact solutions and long-term, I expect delivery to become the modality of choice for most of those 116 million consumers. Why go somewhere myself when someone else can bring it to me?However, while the last mile is how an order gets to a customer, identifying the right last touch points from the retailer is critical.
It would be challenging to operate (physically and profitably) within a few miles of every customer with an assortment of hundreds of thousands of SKUs.To prepare,retailers must plan for flexibility in their last mile fulfillment network.This allows fordelivery options across the spectrum of immediacy, same-day, next-day, and 2+ days.A potential network approach is illustrated below:
Large-Scale Fulfillment Centers
Large-footprint facilities (200k+ sqft), strategically located across the country to maximize coverage
Leverage automation and advanced robotics to enable more efficient fulfillment, picking, and delivery
Solve for direct-to-consumer delivery, offsite pickup fulfillment, and replenishment, to maximize idle capacity
Optimized for batching orders with longer fulfillment lead times (12+ hours) and larger vehicles
Micro/Local Fulfillment Centers
Smaller-footprint facilities that can serve as standalone fulfillment centers or nodes for the large-scale fulfillment centers, expanding coverage even further
Flexibility to leverage manual and automated picking, or a hybrid of the two
Solve for direct-to-consumer delivery and offsite pickup fulfillment
Closer to the customerto solve for shorter fulfillment lead times (3+ hours) with smaller vehicles
Stores / Dark Stores
Customer-facing, existing store footprint, strategically placed for retail foot traffic
Leveraging an existing asset to be closer to the customer
Solve for short lead time fulfillment of delivery and onsite pickup (ASAP)
To optimize this network, constant balancing of demand hitting each facility needs to be considered when surfacing options to customers. As that customer promise is made, the optimization should continue, ideally at the item level, to determine the optimal fulfillment path for that order across each component of the network, if not all from the same facility.
Finally, consider connecting your customer value proposition to this optimization effort. Building in dynamic pricing of fees and/or order-level discounts to impact shopping behavior can help balance demand across the network and fulfillment lead times.
In a world where customers can demand anything, anytime, anywhere, it’s a challenge to fulfill those needs, let alone do it profitably. Optimizing across existing physical infrastructure and building flexibility into the future network is one way to ensure you can prepare to meet 116 million customers on their terms.
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