Grocers need to find smarter ways to make online business profitable, says Jacob Tveraabak, CEO of grocery retail technology firm StrongPoint.
No one needs reminding that all food retailers took a big hit to their profits during the pandemic. Despite a rise in sales, when they reported their results, many revealed that the cost of safeguarding and cleaning their stores, recruiting new staff to replace those that had to stay home and generally managing the upheavals caused by Covid, had been expensive.
One additional negative impact was the rise of grocery e-commerce demand. Historically this has been a difficult market to make profitable with many additional costs involved and the added pressure of ‘expectation spillovers’ in terms of speed and cost driven by Amazon. With the end of the effects of the pandemic now in sight, so far so good, except that many people who were forced to switch online now plan to remain online customers, so winning market share is becoming harder.
Evidence abounds but Barclaycard stands out as a source showing that online grocery spend rose over 115% in February 2021 against the same month 2019. The figures are even more dramatic among the over 65s, many of whom came to online for the first time, and whose online supermarket spend rose by over 300% year-on-year. And now, 57% have said they will continue to buy at least some of their groceries online even after all restrictions end.
What these figures spell out for retailers is an urgent need to address the current lack of profitability in online orders across the whole supply chain. Robotics is a growing trend in the industry and the UK is home to the world’s most famous adopter, Ocado. However even in the UK which is one of the most developed markets in the world for online groceries, the vast majority of orders are being processed via manual picking.
Many people may not realise this but even the most advanced robotised solutions still have to rely on manual picking for a percentage of the orders. Frozen items, bulky items and fresh fruit are common product categories that today still have to have to be picked by hand. So most automated solutions are really a mix of manual and robot-picking meaning overall productivity rates have to take into account picking rates of both and not just the speed of the robots.
But this is still an issue for the tiny minority of the market. For most the biggest challenge is the complexity of picking whether it be in a normal or a dark store. Average in-store picking productivity rates vary but a common standard seems to be that the average store staffer using traditional methods can manage to pick around 60-90 items per labour hour. This increases somewhat for dark stores but either way this is a difficult job – tens of thousands of different items, three different temperature zones, multiple barcodes, risk of errors due to the similarity between many items and large areas to cover. The requirement for very focused labour resources all adds up to cost, normal business interrupted, and possible delays for the customer who expects faster and faster home delivery or pickup service.
The answer to this conundrum is to use technology to augment the power of human labour to make the job of locating and picking items easier and thus faster. It may come as a surprise to some, but such solutions already exist to augment the power of pickers and they are already resulting in productivity rates of ~240 items picked per labour hour, so matching the accuracy rates of automated solutions.
These dramatic productivity increases depend on a number of software innovations as well as better process management such as zone picking and route planning, multi-order picking by a single member of staff, and hardware solutions from the likes of Zebra Technologies that leave both hands free for picking.
The amount of technology needed also adapts to the store size, format and relative demand for orders, although everything is managed via the cloud (mitigating the need for capex investments and ensuring instant updates). For instance, a small convenience store will use a specially adapted compact smart trolley for multi-order picking and perhaps an existing PDA from the store, rising to large supermarkets using multiple hands-free devices, a larger multi-order trolley with integrated weigh scales and label maker and integrated ‘pick by light’ that enables staff to locate a product instantly using light-emitting electronic shelf labels.
And yet, staff training need only take a matter of minutes, an essential factor in a high-turnover industry. All of which adds up to a surprising insight – that fulfilling online orders can be highly efficient and solutions exist to adapt to all stores no matter their location or size.
As an example, a store owner managing a branch of the leading grocery chain in Sweden has told us that they were able to double capacity thanks to in-store grocery picking technology and it provides additional benefits such as being able to offer customer their own goods from their store’s bakery and fresh foods section.
Another found they are managing to get to 10% profit on their e-commerce orders partly driven by the efficiency gains of in-store picking technology with staff averaging a picking frequency of ~270 items per staff labour hour and that’s across all product categories. It should be noted that they do also include a price mark-up on certain items compared to store prices, but it demonstrates that the e-grocery business can be made profitable with the right pricing strategy combined with hyper-efficient picking technology.
People are prepared to pay for the convenience, and from our insights online customers are sticky – once they find a service they like they tend to stick with it.
There are substantial long-term financial gains to be made by first movers in the battle for online market share.Whatever mix of in-store and online shopping emerges as standard, it is already clear that retailers will need a highly efficient and manageable solution for in-store and dark store picking. And it must take them to profit in a scalable and flexible manner, enabling them to augment and leverage the resources they have at hand – their store staff and the stores themselves.