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04/01/2021

Power of Local: Why Even Amazon Is Ditching ‘Go Big or Go Home’

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2020 marked a year of upheaval for the traditional brick-and-mortar store model, as retailers scrambled to meet surging e-commerce demand amid the pandemic.

While the vaccine rollout is raising hopes that the pandemic will gradually fade over the course of 2021, the end of COVID-19 won’t spell the end of growth in e-commerce. Even as the rate of growth slows down following the dramatic spikes of 2020, grocery e-commerce will continue its upward trajectory over the coming years, reaching $129 billion in sales in the U.S. in 2023, compared to $89 billion in 2020, according to projections from eMarketer.

To meet steadily climbing consumer demand while offering the efficiency, convenience and seamlessness that have become the hallmarks of quality digital shopping experiences, retailers will go local in their fulfillment strategies, leveraging micro-fulfillment centers (MFCs) closer to the customers they serve. This approach has gained traction even with big e-tailers like Amazon, underscoring that the macro trends of the grocery industry will be increasingly driven by investments at the micro level.

The Future, Accelerated

Before COVID-19 struck, retailers were already preparing for a future in which e-commerce played a greater role — but few could have foreseen the rapid acceleration ushered in by the pandemic. Those who had rarely or never before purchased groceries online changed their behavior overnight. The vast majority intend to keep buying online, with 68% of first-time grocery e-commerce shoppers indicating that they will continue doing so, eMarketer notes.

That’s not to say the shift to e-commerce has unfolded without a hitch. Incisiv’s Grocery Digital Maturity Benchmark study finds less than 50% customer satisfaction in the areas of delivery and fulfillment. Given the inherent challenges in meeting unprecedented e-commerce demand amid a historic public health crisis, this is understandable. But moving forward, retailers’ competitive positions will depend on their ability to fulfill orders with greater speed and accuracy.

To that end, competition among grocers continues to heat up as they vie to win customers’ business with more efficient fulfillment. In the past year both Target and Walmart have placed precedence on expanding delivery capabilities — pushing smaller retailers to also upgrade their delivery offerings in order to stay in the game.

The Race to Win Customer Satisfaction

With many customers dissatisfied by limited pickup and delivery hours, many retailers moved swiftly to expand pickup and delivery, with some also closing physical stores and converting them into dark stores to meet demand.

Grocery retailers were quick to hire more employees and expand distribution centers to meet the moment, with a focus on bringing aboard manual laborers to replenish inventory and pick and pack. But manual picking is costly, and slow in comparison with automated processes, making it an imperfect solution to the problem of slow and inefficient fulfillment. That’s why retailers like PepsiCo, Kroger, H-E-B, Albertsons, Walmart and whole Foods have invested in automated fulfillment solutions — and many retailers are seeing tremendous value in automated micro-fulfillment centers (MFCs).

The Promise of Micro-Fulfillment Centers

Why are MFCs the key to success in the new grocery landscape? Unlike large warehouses – which require a large capital investment that can take years to see a return on investment and, due to their remote locations, often only add to logistics challenges and exacerbate the last-mile delivery problem – automated MFCs can be built on existing store real estate and keep retailers close to the shoppers they serve, presenting distinct advantages from the standpoints of cost-effectiveness and delivery efficiency.

Automated micro-fulfillment centers not only allow for faster order picking, but also dramatically reduce manual picking costs while enabling retailers to scale much more efficiently, which is very challenging to do when relying on manual labor or on centralized fulfillment centers that take years to build.

It was true before COVID-19, it’s been true during COVID-19, and it will remain the case long after the pandemic is in the rear-view mirror: Shoppers are migrating online, and they expect retailers to fulfill their orders with minimal delay. Meeting this fundamental expectation will require a new approach to delivery and fulfillment. To win big, retailers need to start thinking micro.

Steve Hornyak is CCO of Fabric.

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