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Uber launched in 2011. And a new form of transportation was also launched: ride-hailing. Ride-hailing allows customers to use an app to request a car at a customer’s location that will then deliver them to wherever they want to go — for a fee, of course.
Uber exploded in popularity, likely because it created a service that consumers found much easier to use than the traditional method of trying to call a taxi. In addition, Uber has branched out into package delivery, freight transportation, food delivery and grocery delivery.
The grocery industry in Europe and the U.S. has recently encountered its own version of Uber: rapid grocery delivery companies like Buyk, JOKR, Gorillas, Delivery Hero and Getir, to name a few of the players that have created new delivery services for groceries. Some services promise to deliver groceries in as little as 10 minutes.
Like Uber and other ride-hailing companies, rapid grocery delivery companies have attracted billions of dollars from venture capitalists. For example, the company Gorillas recently raised $915 million.
Although they’re disruptive, rapid grocery delivery companies aren’t necessarily in the same league as Uber, as I’ve found that many lack a technology platform that gives them some form of competitive advantage, and there is a barrier to entry for new entrants. Buyk is one exception to the rule in the industry, as it does possess a proprietary technology stack.
Another weakness in the rapid grocery delivery model is that companies generally fulfill online orders manually. Rapid grocery delivery companies often open micro-fulfillment centers as a way to scale quickly. Pickers inside each fulfillment center pick orders off of shelves by hand and place each item into a basket. Couriers place completed orders into their backpacks and pedal as fast as they can on their bikes to make a delivery.
One of the biggest challenges rapid grocery delivery companies face is that they are in a new industry with a large and global market. The goal of each company is often to scale and achieve a first-mover advantage in their market. This is easier said than done. In my opinion, the only way to win in such an environment is to open as many manually operated micro-fulfillment centers in as many cities and towns globally as possible. The only thing that matters is speed, not profitability.
At some point, however, the growth is likely to stop and the focus may change from speed alone to a focus on speed, efficiency and profitability. This is likely to occur sooner rather than later for most of the rapid grocery delivery companies if they’re funded by venture capitalists. Once these same investors lose interest in continuing to fund companies that aren’t able to show signs of profitability, those companies may go out of business or be acquired.
Manual fulfillment is a blessing for rapid grocery delivery companies that want to scale quickly. Manual fulfillment can also be a curse for these same companies when order volumes increase and customers demand even faster service. To state it another way, manual fulfillment can help a rapid grocery delivery company launch its operations, but manual order fulfillment may not allow that same company to survive long term in the industry.
In my opinion, automation is an eventual must-have. The question is how to utilize it.
How To Transition From Manual To Automated Operations
Based on my years of robotics and supply chain experience, I strongly encourage all rapid grocery delivery companies to begin planning for their eventual transition from manual fulfillment operations to automated fulfillment.
The first step in the process is to map and analyze current operations and develop a business case that justifies automation. Companies need to pay special attention to calculating labor costs, total time to fulfill an order, total time to replenish shelves, areas of growth in and near cities, and the maximum capacity of each fulfillment center. The goal is to identify exactly where it makes sense to open larger micro-fulfillment centers and where automation can be applied across all operations, not just for the fulfillment of orders.
The goal shouldn’t just be to add automation. The goal should be to leverage automation to enable growth. For example, imagine that a rapid grocery delivery company operates 500 manual fulfillment centers that each hold 4,000 items customers can order. Although the company could automate all of the manual fulfillment centers, that would probably be a poor use of capital. In certain low-wage areas with smaller fulfillment centers, investing in automation might not make sense unless the company has excessively high order volumes. Not every fulfillment center has to be automated.
Instead, the rapid delivery company should evaluate the markets in which it operates to identify which fulfillment centers it should automate, which fulfillment centers it should close and where it should open new, larger fulfillment centers.
The delivery company should also identify how many additional products it can sell to its customers. I recommend that rapid grocery delivery companies expand their SKU count to between 10,000 and 20,000-plus items (depending on the market).
As I stated earlier, the goal should be to leverage automation to enable growth. It’s hard to grow without increasing the assortment of products a company can sell to customers.
By introducing automation, like micro-fulfillment centers, autonomous mobile robots (AMRs) and automated guided vehicles (AGVs), and by utilizing software to integrate every aspect of the operations and fulfillment process, rapid grocery delivery companies can increase the total number of products that they can sell by automating nearly every step in the process of fulfilling orders.
Now could be the time to start.
