Inventing the Next-Generation Grocery Logistics

There is no one-size-fits-all answer given the great differences in online adoption and consumer preferences across the country. Supermarket chains will first upgrade their technologies.

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Until recently, grocery shopping has been just about the same for the last 60 years. If you walk into a typical supermarket in the year 1960, you will find the same setup, the same aisles and the same shopping experience as you will today. Yes, there are now more cameras, scanners and robots, but little has changed on fundamentals of a grocery store.

But things are changing, and it is happening rapidly.

First, e-commerce has brought a major jolt to the grocery industry over the last three years. In fact, Mercatus projects online sales – including both in-person pick-up and home delivery – to reach 20% of the total grocery spend by 2026.

Simultaneously, consumer demand is also shifting, with “ready-to-eat” being the most notable trend. Whether it is due to convenience or laziness, more and more people are now looking for items such as hot dishes, sliced fruit and pre-made meals directly from their local grocers.

Those trends have forced supermarkets to serve as not only retail stores, but also kitchens for the ready-to-eat crowd and fulfillment centers for the online shoppers, creating changes that are now reverberating across the supply chain – from store to distribution to food processing.

So, what does it all mean? Below are three major transformations that will be critical for anyone tied to the grocery supply chain.

Packaging as enabler of speed and efficiency

E-commerce grocery has always faced the challenge of profitability. After all, the current model for online grocery fulfillment still resembles that of having a personal shopping. It typically takes over one minute for a store associate or an on-demand driver to pick out a single item, which often averages only $3 in sales. Given the razor-thin margin already inherent within the grocery business, this has created significant pressure on profitability across supermarket chains.

Furthermore, many customers have yet to find the online grocery experience satisfying. While expectations on delivery time have risen substantially, most supermarkets still struggle with the basics of fulfilling high-quality, accurate orders.

For online grocery, product packaging will be an important part of the answer to driving more efficiency. The easiest e-commerce item to bag is a box of cereal. It is clearly branded, a dry good and therefore not necessitating much care in packing, and easy to count. On the other hand, if a customer needs five apples, then the store must rely on the ability of an individual to find the right apple variety, place the right number of items in the bag, and ensure the right “aesthetics”, which is very important for fresh products – while doing so in a matter of seconds.

That is why grocers are starting to realize that “bagging everything,” most notably fresh produce, is an essential part of e-commerce. All products will need to be stored in pre-packed format, which can be then picked easily. It means limiting consumer choices – for example, you can only buy apples five at a time, but it also significantly lowers the packing complexity, therefore saving time and reducing chances for error.

The bagging phenomenon will also affect stakeholders across the value chain. For example, some food processors may need to change the ways they produce. Transportation companies will also have to think about procedures differently to deal with new product packaging. This will culminate in new opportunities for technology and service providers to help businesses ease the “bagging transition.”

A new type of supermarket

E-commerce grocery also has major impact on in-store shopping experience. Many brick-and-mortar consumers are starting to notice the influx of grocery delivery drivers and store associates running around the stores and crowding aisles to fulfill online orders, creating a need for more separation between traditional shoppers and online fulfillers.

In addition, current store layouts are not made for e-commerce. For example, frozen items are highly time-sensitive and need to be picked last. Stores are now adjusting their configurations to meet the new reality of online shopping.

While this certainly creates opportunities for those involved in automation to bring fulfillment robotics to grocery. the volume for online grocery in most parts of the country has yet reached a level that can easily justify such large capital investments. Therefore, optimization of manual pick-and-pack will remain a top priority for grocery chains, making changes to store layout an essential part of optimizing for e-commerce growth and profitability.

New era for grocery inventory management

Over the last two decades, e-commerce has brought huge transformations to inventory management for general merchandise. That same is now happening in grocery.

Historically, most supermarkets have struggled with accurate, real-time data on in-store inventory and stock replenishment. Given the large number of SKUs and easy like-for-like substitutions when a specific brand of a product is not available, that level of data precision was not essential. After all, having five different brands of ketchup fully stocked on store shelves may be occasionally useful, but not necessary for the right consumer shopping experience.

That all changed with e-commerce grocery. Consumers expect to have accurate view of available products through shopping websites and receive the exact products as they have ordered. It places significant pressure on grocers to increase their sophistication in real-time inventory management.

To solve for this, supermarket chains will first upgrade their technologies. Very quickly, however, the entire supply chain must improve with them. Distributors will now face higher expectations to deliver the right stock at the right time with ability to make rapid adjustments based on the changing needs of each individual supermarket. Transportation companies will also have to raise service levels in support of grocers.

Given the enormous changes that are now happening in grocery, businesses now face the challenge of making the right investment decisions. There is no one-size-fits-all answer given the great differences in online adoption and consumer preferences across the country and the grocery chains that will eventually emerge as winners for the upcoming decades will most likely be the ones that have made the right bets over the next five years.