Micro-Fulfillment Centers on the rise due to COVID-19

The pandemic changed just about every aspect of normal life, including how people bought food. While going to the grocery store used to be a weekly event for many households, the impact of the pandemic changed the way consumers view their shopping trips. All grocery sales spiked in volume as consumers avoided indoor dining at restaurants, whether by choice or by law.

In 2020, US online grocery sales rose 54% to $96 billion. While many consumers are likely to return to the stores as the pandemic abates, more than one-third of surveyed online grocery shoppers said that they would continue shopping online .

In India, Grofers, an online grocery service provider has scaled up its supply chain and manpower by more than 100% over the same time last year. Walmart-owned Flipkart said it plans to expand its grocery services to 70 Indian cities over the next six months, having covered more than 50 cities through its pan-India marketplace.

In many ways, these shifts have improved the overall shopping experience for consumers, making it more convenient and seamless. Alternative shopping and delivery options such as buy online pick up in store (BOPIS) and curbside pickup have increased in popularity during the pandemic and show no signs of abating. However, what most consumers don’t realize is the massive upheaval these shopping trends have caused for retailers and the supply chain. The workflows required to meet these new demands and ensure items are ready for shoppers when they arrive to pick up their groceries has increased complexities around retailers’ BOPIS programs. Furthermore, retailers had such a short window of time to adjust to these changes that many are still trying to implement new processes and technology tools to expand operations and improve the customer experience.

One of the biggest shifts in the industry over the last year has been the skyrocketing demand for e-commerce. Prior to the pandemic, e-commerce was just a sliver of most grocery retailers’ businesses, but it has quickly become a much larger portion of their revenue. India’s e-commerce industry is estimated to clock $55 billion in sales during 2021 with the addition of 40 million new online shoppers. The number of online shoppers for 2021 is pegged at 190 million compared to 150 million last year.

While it may make sense on paper to bring fulfillment closer to a retailer’s distribution center, from a last mile perspective this solution is less ideal. That’s where the concept of micro-fulfillment centers (MFC) comes in.

MFCs are simple enough – think of them as a giant vending machine of sorts that allows retailers to dedicate a portion of its store to becoming a mini distribution center. Having this automated “shopping” capability in-house allows items to move faster through the fulfillment process. Intelligent robots can even be leveraged to bring picked goods to store associates charged with the final packing of orders.

MFCs reduce the amount of manual work required by human workers, freeing them up to focus on higher value tasks, and also reduce the number of pickers on the store floor. Even before the days of the pandemic, online order pickers were often seen as intrusive to customers who were shopping in store.

In an already busy grocery store, it’s hard to imagine where the space might come from to add an MFC. However, MFCs typically take up less than 20,000 square feet and the construction impact is minimal, making them a feasible option for many grocers. Plus, the changes in shopping behavior brought on by the pandemic alleviated the amount of in-store traffic many grocery stores receive, making it easier to justify a greater allocation of store space to an MFC. COVID-19 taught consumers and retailers alike that having five different brands of a particular item isn’t necessary anymore – and some products that consumers used to buy in store can now be purchased online or via direct to consumer (DTC). This has helped grocery retailers reduce the number of brands they carry, thus freeing up even more space and making it more reasonable to dedicate square footage to an MFC.

For a reasonably low capital expense (CAPEX) investment, retailers can leverage MFCs to address e-commerce fulfillment more profitably while freeing up staff to restore some of that customer loyalty that is begging to be addressed as we emerge from the pandemic. To a certain extent, the pandemic will be recorded in the history books as having caused as much retail innovation and change as the advent of Amazon. Interesting times indeed.

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