H-E-B, one of the best grocery retailers in the U.S. in my opinion, has announced the opening of a 55,000 square feet micro-fulfillment center that is attached to an H-E-B store located in Plano, Texas.
The Plano facility is the first e-commerce fulfillment center in North Texas for H-E-B, a chain of more than 420 stores in Texas and Mexico with sales last year of $34 billion. It’s the sixth such in-store fulfillment center that H-E-B is using to meet customer demand for online groceries.
H-E-B has a strategic partnership with the cube-based automation and robotics company AutoStore, which provides H-E-B with the micro-fulfillment system that was installed inside H-E-B’s fulfillment center.
The announcement by H-E-B follows an announcement by Walmart in May that it continues to expand its use of automation to fulfill online orders via market fulfillment centers (MFCs).
Walmart has opened two MFCs—one is located in Bentonville, Arkansas, and the other is located in Salem, New Hampshire. The MFCs are powered by automation from the company Alert Innovation, which was acquired by Walmart in 2022. I anticipate that Walmart will slowly open additional MFCs within select stores. Walmart has not announced the exact number of MFCs it plans to open.
Walmart’s market fulfillment center is similar to the strategy used by H-E-B and their partner, AutoStore. H-E-B is using its stores as fulfillment centers, and the AutoStore system holds thousands of items found on H-E-B’s store shelves, from paper towels to jars of peanut butter. Walmart is using its stores as fulfillment centers, and the Alert Innovation system installed by Walmart can also hold thousands of items, from canned goods to fresh fruits and vegetables.
According to reports, the global market for micro-fulfillment center technology is expected to reach $10.85 billion by 2030.
Technology: Growing In Importance
Since my last article on micro-fulfillment in 2022, I’ve begun to notice a significant change in how retailers view the need for technology to better run their stores and companies. For example, with a shrinking pool of labor to work inside warehouses to fulfill online orders combined with the high cost of labor, retailers are seeking automated solutions at an advanced pace. The challenge that most retailers face is the cost of automation, which can run into millions of dollars. Many retailers are unable to automate based on a lack of capital.
To complicate matters for retailers, the release of ChatGPT by the company OpenAI has resulted in a mad scramble for artificial intelligence (AI) solutions that retailers can leverage across their operations and supply chain. The jury is still out on the potential improvements and savings that retailers will achieve.
Based on my experience, I recommend that retailers explore software like that from 345 Global, which offers AI-powered integrated store planning, e-commerce, and digital twin technology. Most of the leading retailers have come to realize the importance of leveraging advanced virtual reality and augmented reality in their planning and operations. Digital twin technology is one of the fastest-growing areas of investment for retailers.
Retailers are also dealing with the fallout from COVID-19. During the height of COVID-19, many consumers ordered their groceries online for delivery due to the desire to avoid being in crowded supermarkets. The increased use of online grocery ordering and delivery convinced grocery retailers that they needed to be prepared to have stores with fewer customers once COVID-19 ended. Retailers misjudged what was happening. When COVID-19 restrictions eased, many consumers returned to shopping inside stores, and the percentage of online orders decreased. On average, just 11.4% of all grocery sales are online.
With so many changes taking place, grocery retailers are faced with the dilemma of managing their current operations while having little choice but to change their business models to include more technology. Many retailers won’t be able to make the changes on their own, leading dependence on to third-party fulfillment companies as partners to expand their business models.
The Changing Reality Of Fulfillment
As a consultant serving the needs of grocery, big-box, and specialty retailers, I am frequently asked by retailers what their options are for transforming their companies. There is no one-size-fits-all answer, as each retailer operates in a different category. For example, a strategy utilized by Walmart will be far different than a strategy to meet the needs of a specialty retailer like Ulta Beauty.
We also have to accept the fact that even retailers in the same category, grocery for example, have many different capabilities. What may work for one grocery retailer won’t necessarily work for another grocery retailer.
The good news is that there is one area of grocery retailing that I have been able to help solve for clients and that on occasion, I have been able to share across retailers—online and curbside grocery fulfillment.
A lot has changed since 2022. Instead of planning for, say, 30% of a retailer’s grocery business to move online, most industry experts believe online sales will reach between 15% and 20% of a retailer’s business by 2030.
Even at 15% to 20% of online sales, grocery retailers are facing major challenges. For example, consumers continue to voice their anger at having to share aisle space with “pickers” who roam aisles pushing carts, and pulling products off of shelves to fulfill online orders. As online sales increase, retailers will have to increase the number of pickers inside their stores. This will lead to even more customer dissatisfaction.
Installing micro-fulfillment centers in an addition connected to a store, in a stand-alone MFC among a cluster of stores or inside a store similar to the model used by H-E-B and Walmart remains my preferred strategy.
If online sales don’t increase as much as predicted, I anticipate that third-party delivery companies may convince many of their grocery retail customers to outsource their online business entirely to them, including fulfilling and delivering online orders under their own delivery brand. This will allow retailers to remove third-party pickers from their stores and turn the stores back over to customers.