What you are about to read is my opinion.
Beginning in late 2022 and throughout 2023, current and former employees of the grocery micro-fulfillment company, TakeOff, began to reach out to me to provide updates about what’s going on inside the company. I’m a former advisor to TakeOff and I know a lot about the company.
I chose to write this article after having off the record discussions with 12 individuals with direct knowledge of TakeOff’s operations, sales, revenue and attempts at raising capital. I had additional off the record discussions with customers of TakeOff who asked to speak with me.
From Bad To Worse
TakeOff utilizes a robotic system from the company KNAPP to automate the process for picking groceries. Although KNAPP has been in business since 1952, I believe their grocery picking system is extremely basic. However, I rank KNAPP a leader in other areas of logistics automation.
I don’t want to give the impression that KNAPP isn’t trying to innovate. They are. Based on information provided to me by multiple sources, the goal of KNAPP and TakeOff is to create a mixture of fulfillment solutions via a joint venture that can be leveraged by retail customers. The solutions will vary in size, scope and cost. For example:
Micro-Fulfillment Center: Enable hyperlocal fulfillment leveraging low-cost automation to pick 50 items in 6 minutes or less. MFCs cost $3M to $4M on average for a 10,000 square feet facility. The goal is to generate $30M in annual sales.
Nano Express Operation: Designed to fulfill multi-temperature orders in a 2,000 square feet facility and generate between $10M to $15M in sales. Average cost of $1.5M to install.
Mini-MFC: A combination of a Nano OSR and a Manual Scan Free pick area. Will support $15M to $20M in sales at a cost of $2M for a 5 to 8 thousand square feet facility.
Open Shuttle Stores: A manual picking process that can be installed quickly with an option to add automation later. The cost of the system averages $300K and can do $10M in sales in 8 to 12 thousand square feet.
Modular Hub Fulfillment Center: Designed to fulfill B2B and B2C orders and can function as a DC for for MFCs. Cost $5M to $10M to install and can manage $60M to $100M in sales annually.
I like what KNAPP and TakeOff want to accomplish. However, I believe in order for the vision to become a reality, TakeOff must hire a new CEO and make additional leadership and personnel changes in the company. I like and admire TakeOff Co-Founder and current CEO José Vicente Aguerrevere. However, I’ve worked with multiple companies that were in a position similar to TakeOff, and the companies that replaced their founder and CEO generated more revenue and improved operational performance better than the companies that kept their founder as CEO. It’s nothing personal against TakeOff.
I encourage KNAPP to assess their team to ensure they have the best team in place to drive the initiative.
According to sources, Takeoff has been unable to meet the sales goals of KNAPP. This has resulted in TakeOff owing between $2M to $4M to KNAPP. Instead of forcing TakeOff to pay the money that is owed, KNAPP has offered to become an equity owner in TakeOff. The two companies are in discussions to finalize the agreement. According to sources, KNAPP will not invest capital into TakeOff; I think this is a mistake.
TakeOff has been severely impacted by the economy. Many retailers have put a hold on investing in automation especially anything related to micro-fulfillment. Due to a lack of sales, TakeOff has put a focus on reducing their cash burn rate which they have accomplished through restructuring, cloud hosting, and G&A reduction. TakeOff has reduced their headcount by 123 FT associates in 2023. The company currently employees 176 associates. The numbers are misleading as several resources in the U.S. were cut and replaced by new hires in India according to sources. Sources from TakeOff told me that the company is in the process of putting together another list of individuals they plan to layoff in December. If the layoffs occur it will be the third round of cuts in 2023. It’s also a red flag into how poorly TakeOff’s business is doing.
The biggest challenge for TakeOff according to multiple sources, however, is that the company has only secured one new customer for 2023, the retailer Hy-Vee, and TakeOff has failed to close any new deals for 2024. According to an industry analyst I spoke with, “TakeOff is viewed very negatively when compared to other MFC vendors and it limits their ability to attract new customers.” According to sources within TakeOff, “We almost have to give our solution away for free to get anyone to do business with us.” I’ve heard the latter comment many times from TakeOff associates.
I am a fan of the retailer Hy-Vee. I truly believe that they are one of the best grocery retailers in the United States. The privately held chain currently has more than 285 stores in Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, South Dakota, and Wisconsin. The chain is evaluating an expansion into Indiana, Tennessee, Alabama and Kentucky. I support the expansion. I encourage Amazon to assess an acquisition of Hy-Vee.
However, I believe Hy-Vee should not have entered into an agreement with TakeOff for several reasons. Among them, Hy-Vee failed to thoroughly assess all available MFC solutions and the company’s strategy will deliver little value to Hy-Vee or their customers.
I spoke with Hy-Vee CEO Jeremy Gosch at the FMI conference in early 2023 about my concerns regarding TakeOff. I asked Gosch to walk me through the process Hy-Vee had used to select Takeoff, but Gosch only replied, “I think we’ve picked a winner with TakeOff.” I then asked Gosch, “What other micro-fulfillment systems did you assess to convince yourself Takeoff is a winner? Why is Hy-Vee choosing to install a system from TakeOff instead of from Alert innovation or another tier 1 MFC vendor?” Gosch didn’t answer the questions. Instead, Gosch excused himself and hurriedly walked away from me. That’s when I knew for sure that Hy-Vee had failed to conduct the necessary due diligence for selecting the best MFC.
Since Gosch chose not to speak with me, I reached out to executive contacts and associates at Hy-Vee and I advised them to assess an agreement with Fulfil, Instock, Cartesian Kinetics, Attabotics, AutoStore, or Super Duper instead of signing an agreement with TakeOff. I’ve written articles and posts making the same recommendation. Several individuals from Hy-Vee stated to me that they wanted to evaluate other systems but, “The decision has been made to go with TakeOff even though it’s not the best solution for Hy-Vee.” Big mistake. I encourage retailers to evaluate all available MFC vendors before selecting a system.
I challenge anyone at Hy-Vee to defend the decision to select TakeOff in front of Hy-Vee’s Board of Directors with an expert in last mile delivery, logistics and micro-fulfillment from Bain & Company, Boston Consulting Group, or McKinsey present in the room to give their opinion on the topic.
Based on the discussions with individuals from Hy-Vee and TakeOff, it was clear to me that the team at Hy-Vee making the decisions about which MFC to purchase didn’t understand the technology or how to negotiate with MFC vendors. For example, Hy-Vee agreed to purchase three Version 1 KNAPP systems from TakeOff even though TakeOff has a Version 3 of their system. Apparently, KNAPP is charging TakeOff storage fees on the Version 1 systems, and TakeOff convinced Hy-Vee to take the much less capable Version 1 systems off their hands to get out from paying storage charges to KNAPP. I’m not surprised the inexperienced team from Hy-Vee agreed to the deal even though the only company to benefit would be TakeOff.
The original agreement with Hy-Vee was for 23 to 25 systems to be installed through Q3 2026. However, Hy-Vee has changed their system requirements from installing three aisle systems to installing five aisle systems. This will result in a total of 16.5 systems being installed. I question if this is the right strategy for Hy-Vee. The change by Hy-Vee will result in a revenue shortfall of several million dollars for TakeOff.
Note to Hy-Vee: You must assess all risks to Hy-Vee if TakeOff goes out of business. In my professional opinion, the project with TakeOff should be canceled immediately and the MFC strategy should be reevaluated. Hy-Vee must make the right decision and leveraging limited MFCs is the wrong approach.
Another challenge for TakeOff is that they haven’t sold any additional systems to their current customers such as Albertsons, Big Y, Loblaw’s, Majid Al Futtaim, Pinemelon, Wakefern, Woolworths, and a few others. Cencosud, the largest retail chain in Chile, and the third largest retail chain in Latin America, is reviewing a potential deal for three systems according to sources.
In a change of strategy, TakeOff is attempting to provide a managed solution to their customers beginning with Woolworths and ALDI. In essence, TakeOff would provide the technology and personnel to run micro-fulfillment centers and fulfill orders for their customers. Note to Woolworths and ALDI, two of my favorite grocery retailers: DO NOT, under any circumstances, enter into an agreement with TakeOff to provide a managed solution as doing so would be a catastrophic mistake in my opinion. TakeOff lacks the system, software, and expertise to provide managed services. There are much better options for Woolworths and ALDI to pursue.
Note to ALDI: You’re making a mistake in not doing a better job of identifying the optimal micro-fulfillment and last mile delivery strategy. Frankly, I’m amazed at how poor of a job you’re doing.
Failing to sell additional systems has significantly reduced revenue and caused shortfalls in several areas of the company. The inability of TakeOff to sell additional systems to their current customers or win new customers are massive red flags. TakeOff is implementing Hubspot’s CRM tool to make their Sales Operations processes more robust but I have my doubts that this late in the game the software will have a material impact on sales.
To make matters much worse, TakeOff recently lost an investor in their company. I have chosen not to name the investor. Losing the investor has created a number of problems within the company. TakeOff CEO José Vicente Aguerrevere is actively seeking additional investors “with the goal of raising $5M for 2024” according to several sources. Will TakeOff be able to raise the needed capital? It’s a tough environment for raising capital. If TakeOff doesn’t raise capital, the company will go out of business or they will be acquired for pennies on the dollar.
What’s Next For TakeOff?
According to sources I spoke with at TakeOff, KNAPP, and a customer of TakeOff, a major area of concern is the lack of C-level executives at TakeOff who have a background in fulfillment and automation. Mitchell Freeman, President of TakeOff, for example, has some supply chain experience from Wayfair but he lacks experience in the areas that are most critical to Takeoff. Mitchell has mostly a background in consulting and finance. I received a lot of negative comments regarding this topic from the individuals I interviewed.
Several sources told me that over the years, TakeOff, has hired individuals who have experience but they don’t last long as they push back against the company’s strategy. A former employee stated to me, “There is TakeOff’s view of the world and then there is reality. TakeOff’s executive team prefers to see things their way. I was shocked by how little the executives I worked with understood what was going on in their industry and where they should focus their efforts. The software and tech was mediocre.”
Another issue that I uncovered when researching and writing this article is that once a contract has been signed with a grocery retailer, the retailer feels like they’re on their own during the installation of the MFC and the software. TakeOff customers that I spoke with stated to me that most of the individuals they interact with at TakeOff don’t understand their business and there is an attempt to treat all customers the same. I heard many negative comments about the post-sales and system installation process from TakeOff customers.
After speaking with customers, it was easy for me to understand why TakeOff fails to sell additional systems. According to one customer, “We haven’t achieved anywhere near the savings or performance improvement that TakeOff promised. The software is limited and the system is much slower and cumbersome than we anticipated. The system also requires an excessive amount of maintenance to keep it operating. The customer experience with TakeOff is poor and frustrating.”
According to multiple individuals with experience installing and maintaining TakeOff’s system, they stated to me that, “There are numerous issues with using KNAPP’s shuttle system that impacts a customer’s performance and savings.” A source at TakeOff confirmed for me that a frequent complaint of customers is, “Poor performance, excessive maintenance and an uptime of only around 65% for the system.” For comparison, the MFC from AutoStore has an uptime of nearly 100%.
TakeOff sources I spoke with stated that the company is trying to secure a deal with C&S and Instacart, or Instacart may take over a Big Y location that includes a system from TakeOff. Sources also told me that TakeOff is pursuing an opportunity with Amazon for a four aisle system in Kent, WA and a managed solution for Aldi. In my opinion, Instacart, Aldi, and Amazon will never do business with TakeOff as there are simply much better systems on the market and they won’t tolerate working with a vendor that is incapable of meeting their needs; this is only my opinion.
The software used by TakeOff elicited a lot of negative comments from the individuals I interviewed. Multiple sources who have expert knowledge of TakeOff’s platform stated to me that, “Mitchell keeps telling everybody we talk with that we have the best software yet we can’t support multi-order picking even though we’ve been trying to do so for over two years. Mitch doesn’t have any industry experience which is why he thinks the software is so great. Our software is a weakness that we have to fix.” No one I spoke with from TakeOff had anything positive to say about the software. This is another red flag. It’s inexcusable in my opinion that TakeOff has failed to develop a robust software platform.
From a strategy perspective, TakeOff could potentially end the exclusivity agreement with KNAPP in order to leverage MFC systems from other vendors or possibly build and provide their own MFC system. However, once again, the challenge is software. KNAPP’s WCS and Shuttle Controls, and TakeOff’s software are fully integrated. If TakeOff wants to walk away from KNAPP, or if a company wants to acquire TakeOff and end the agreement with KNAPP, it could take as much as two years to develop new capabilities in TakeOff’s software. In my opinion, KNAPP acquiring TakeOff is best for both companies as it will eliminate any issues related to software or systems.
I strongly encourage the Board of Directors at TakeOff to hire an investment bank to investigate a sale of the company. In my opinion, the proposed equity agreement with KNAPP should be scrapped. If KNAPP isn’t willing to acquire TakeOff or invest a minimum of several million dollars into TakeOff, I don’t see any value to TakeOff. TakeOff needs cash. Now.
In addition, the Board should conduct an honest assessment of the leadership team at TakeOff. If the board is unbiased, I’m confident they’ll come to the conclusion that changes need to be made throughout the company. The brutal truth of the matter is that changes should have been made several years ago at TakeOff. It may simply be too late to save the company regardless of who is named CEO.
Competitors of TakeOff, like Fabric and Brightpick, as well as several others, should put an immediate plan in place to assess acquiring TakeOff. My advice to any MFC vendor that acquires TakeOff is assess ending the exclusivity agreement with KNAPP but be willing to keep the agreement if it means reducing costs and complexity related to the software platform. I would not retain any of TakeOff’s senior executives. In addition, Takeoff’s headquarters in Waltham, MA, should be evaluated for closing or becoming the new headquarters for the combined companies.
TakeOff is fighting for their survival. Will they succeed? I honestly don’t know but I wish everyone at TakeOff the best.
