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By Manhattan Associates | Tuesday February 16 2021 | UPDATED 16.02.21

Many grocers & retailers are struggling to turn a profit from online deliveries, so what is the answer? Help may be at hand in the form of micro-fulfilment centres says Manhattan Associates

The pandemic has accelerated the proliferation of ecommerce by up to six years according to certain reports & the grocery industry has been one of the most (positively on the whole) affected by this surge in online sales.

Coupled with ecommerce uptake however, there are associated challenges when it comes to fulfilment & delivery, & for many years, retailers have been daunted by the capital spending & technical challenges of offering online food shopping at scale.

As online sales & ‘store to door’ delivery looks set to continue well beyond the end of the pandemic, many grocers & retailers in general are struggling to turn a profit from online deliveries. However, help may be at hand in the form of micro-fulfilment centres.

Tech advances

COVID-19 didn’t just fast-track ecommerce uptake, it also accelerated advances in technology, pushed c-level boards to revaluate traditional business models & forced them to rethink relationships between retailers, disruptive start-ups & automation: setting the scene for a potentially radical shake up of fulfilment strategies into 2021 & beyond.

At its core, micro-fulfilment is aimed at speeding up the delivery of goods to consumers by bringing the product closer to the consumer.

As the name suggests, micro-fulfilment sites are far smaller than the traditional retail model of sprawling, labour-intensive distribution centres located in just a few remote locales. By adding more automated operations to smaller urban sites & even the backs of physical high-street stores, retailers are aiming to slash delivery times for online orders, enabling products to reach customers in a matter of hours, rather than days.

Despite the clear benefits of speed of delivery, micro-fulfilment also comes with a number of other added benefits too: cheaper than larger, fully robotics-equipped warehouses, a fully automated micro-fulfilment approach improves COVID-19 safety too; it reduces the costs of floorspace & expedites the picking process; enables later ordering cut-offs; reduces the carbon footprint of delivery networks, by being closer to the consumer & could also provide an additional collection point away from busy store locations.

While the notion of micro-fulfilment centres is still largely in its infancy, as a proof of concept, the idea is rapidly gaining interest as grocery chains, fast moving consumer goods manufacturers and other retailers consider creative options to meet the challenges of ecommerce surges – challenges that look likely to long outlive the pandemic itself.

Further legitimacy for this new approach can be found in a recent article from the Wall Street Journal which quotes research from Interact Analysis estimating the market for automated grocery micro-fulfilment centres could be worth upwards of $1.2 billion in North America alone in just four years.

Other attractive aspects of micro-fulfilment centres are the options available when it comes to setting them up. You can set up micro-fulfilment centres to primarily service customers in the local area of one store, or you can also set up a ‘hub & spoke’ model where one centre could actually serve many different stores. Another approach could even be to set up a ‘dark store’ as a micro-fulfilment centre.

There is no doubt that the pandemic has accelerated a more flexible ‘outside the box’ approach to operations for many businesses in the second half of 2020.

Store base

As many retailers remain reluctant to use their current store base for ecommerce fulfilment (as it interrupts customers, and can cause issues more generally during times of social distancing), concepts such as automation & micro-fulfilment will likely be the winners as this shift towards an increasingly scrappy, fast-paced, start-up feel continues into 2021.

Beyond the challenges of adapting to a more entrepreneurial mindset, the practical aspects of making micro-fulfilment centres work efficiently rests on three core pillars.

First making sure that you have an effective omnichannel offering that connects ecommerce orders to the appropriate micro-fulfilment centres; secondly, making sure that you have visibility of your full list of inventory; & finally, making sure you have the in-warehouse systems (human & robot) in place to meet the exacting delivery demands of the end customer.

Looking forward to 2021 there are still many challenges ahead, however, we should feel positive of the outlook ahead. 2020 showed retailers and senior leadership were willing to go above & beyond normal conventions & carried into the New Year, this should herald an exciting year of fresh developments as approaches like micro-fulfilment gather pace!

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