Micro-fulfilment is transforming the way logistics work across cities. Paying attention to this trend and the demand for last mile delivery offers some interesting opportunities for established brands and startups alike.

What is Micro-Fulfillment?

Micro-Fulfillment is a scalable, modular, configurable solution that can be implemented in as little as 12 weeks. The solution can fit into the back of a store or in a separate location. It offers high storage density to create “the infinite aisle,” high throughput, and three temperature zones (ambient, chilled and frozen) to enable affordable automation for grocers and other temperature-sensitive retailers. Micro-Fulfillment makes one-hour order fulfillment an easy achievement.

See it for yourself in the video below. When an order enters the system, the automation kicks into gear, using reliable, proven automation technology with guaranteed uptime to keep our customer’s warehouses operating 24/7.

The speed at which the retail industry is evolving to navigate e-commerce and gig economy disruption is happening far faster than we could have predicted. Gone are the days when shoppers were battling for parking at the local mall to take advantage of a department store sale, or shuffling through the aisles to hunt down dinner in a rush after work.

Today, consumers can shop any retailer in the world at any time of day from the comfort of their own home. And while two-day shipping started out as a luxury, it’s quickly become the industry standard for online ordering that modern consumers now expect and demand.

With this increasing consumer demand, options for online ordering have also increased, giving customers more power in where and how they shop. And if a shopping experience or product doesn't meet their high expectations, they can easily take their business elsewhere. In fact, 41 percent of consumers say they’re less likely to return to any store of the same brand where they’ve had a bad experience, and 69 percent say they’re more likely to shop at a competitor after even just one bad experience, according to this recent ServiceChannel report.

With customer loyalty on the line now more than ever before, retailers must focus on providing a positive and differentiated shopping experience at speed, tailored for consumers based on shopping habits and preferences. And to be future-forward, retailers must shift how they think about technology and space in their approach to order fulfillment.

The logistics sector is undergoing enormous disruption. In the near future, consumers will be able to receive their items as little as one hour after they place an online order. This might sound like madness, but if you think about it, rapidly-delivered services are already familiar to most urban consumers. Trailblazers like Deliveroo, Ofo and Uber have already made extreme efficiency a day-to-day reality for food, bikes and rides. When it comes to logistics, the principle is largely the same — but the potential is even further-reaching and there’s a lot going on behind the scenes.

Tomorrow’s delivery logistics will operate in a similar way to the innovative app platforms that have already enjoyed wide adoption by the general public. Like their predecessors in other industries, the companies and platforms powering a new approach to logistics will focus on cities to start with. When packages are ready for delivery, an app worker will receive a notification to come and collect from a distribution centre in their neighbourhood. The worker could be anyone with the appropriate means of transport for the delivery, likely a motorbike, bicycle or simply a pair of feet.

This short distance run in a localised area is what’s referred to as a ‘last-mile delivery’ and it’s historically proven to be one of logistics’ biggest pain points. But thanks to the accelerating rise of micro-fulfilment, last-mile headaches could soon be a thing of the past.

Micro-fulfilment refers to the idea of placing small-scale warehouse facilities in accessible urban locations, close to the end consumer who is making a purchase. While some of these micro-fulfilment centres will be their own dedicated buildings, others will occupy spaces that are already part of the urban tapestry, such as central car parks, the stockrooms of local shops or even the basements of office buildings. Its rollout will make rapid delivery services more seamless and affordable, as well as helping to relieve congestion in cities and creating fresh opportunities in the gig economy.

Online retailers are seeing Black Friday-like sales due to the impact of the COVID-19 pandemic on their business. According to new data from Adobe’s Digital Economy Index, U.S. e-commerce jumped 49% in April, compared to the baseline period in early March before shelter-in-place restrictions went into effect. Online grocery helped drive the increase in sales, with a 110% boost in daily sales between March and April. Meanwhile, electronic sales were up 58% and book sales have doubled.

The demand for micro-fulfilment is already clear. Research by PwC highlights the importance that both businesses and individuals place on same-day and next-day delivery today. Put simply, consumers and the businesses that serve them want goods faster and more flexibly than ever before, and they expect this to be provided either for free or for a nominal fee. Moreover, consumers are primed to welcome and adopt changes based on their previous experience. Sharing economy platforms have done a good job of training the market to make use of spare space and to perform logistics tasks with their smartphones.

Right now, retail juggernauts like Amazon Prime and Walmart offer unlimited next-day delivery options, and most smaller companies simply can’t compete. But the introduction of micro-fulfilment is set to change this quickly, democratising the landscape so that players of all sizes can offer the same level of efficiency and flexibility to their customers.

For real estate, the implications of all this are huge. According to data from CBRE, 1.25 million square feet of distribution space is required for every $1 billion in e-commerce sales. Year-on-year, those sales have seen a steady and consistent growth rate of 10%. In 2017, e-commerce sales totalled $491 billion and these companies required an additional 50 million square feet of warehouse distribution space. Last mile distribution makes up a significant part of this need.

The property sector’s appetite for small warehouses in central locations has become increasingly apparent. Institutional investors are buying up urban industrial buildings fast, recognising that these previously overlooked assets will be big business in the years to come.

As a result of consumer demand for faster and more seamless delivery, the industry has experienced a huge surge of interest in formerly obsolete class-B, -C and -D urban industrial buildings. It’s causing investors to snap up entire portfolios of them all over the world. In fact, rents at class-B urban industrial facilities were up more than 10% year-on-year from 2015 to 2016 and they’re outperforming other industrial assets, according to the research firm CoStar.

Micro-fulfilment is well on its way to transforming the way logistics work across cities. For ambitious investors and disruptive startups alike, getting on board with the trend early could offer a myriad of interesting opportunities. Some of them could even be delivered within the hour.

The Need for Automation

These factors are causing virtually every major grocery chain to explore opportunities to automate e-grocery fulfillment. This can prove challenging on several levels. First, it may involve bringing automation into retail stores that were never designed to accommodate it. Space constraints within the existing retail footprint will create challenges for many traditional material handling systems. The alternative is major new investments in dedicated fulfillment facilities. In addition, e-grocery order fulfillment can’t be fully automated. A majority of orders will include some combination of non-perishable items — which can be efficiently managed through an automation system — along with frozen items and perishables, such as produce, deli products and prepared foods, which don’t lend themselves to automation. These non-perishable items are also often sold by weight rather than piece, which introduces additional challenges. With the market still in its infancy, grocers are having to evaluate automation solutions while still defining fulfillment processes that optimize the use of technology while retaining the flexibility of manual processes in ways that don’t significantly compromise speed.

The One-Hour Mandate

Another variable that must be considered is consumer expectations and preferences, which are still evolving and may vary in different neighborhoods within the same market. Today, consumers in densely populated urban areas are showing a preference for in-home delivery while those in surrounding suburbs seem content with in-store pickup. Will in-home delivery ultimately surpass store pickup, or will a substantial segment of the market continue to be willing to drive to the store to pick up their orders? That’s a question that will only be answered with time. Expectations around speed of fulfillment are easier to predict. Groceries aren’t a “want,” like many other e-commerce purchases. They are a need that is consumed continually in most households, creating the demand for short delivery times. Waiting even a day or two for grocery orders will prove unacceptable for many. Just as some e-commerce companies created competitive advantage by shortening delivery times, large grocers are using one-hour fulfillment as a target for e-grocery customers. This is a very aggressive goal and will not be possible in all cases, but there is little doubt consumer expectations will quickly be shaped by the situations where one-hour fulfillment is possible.

Urgency and Uncertainty

Grocers are rightly feeling a sense of urgency around e-grocery fulfillment. With the total market for e-grocery services projected to reach $100 billion by 2022, the stakes are high. Get it right and tap into the biggest growth opportunity the industry has seen in years. Get it wrong and risk losing ground to competitors. Despite the challenges and uncertainty, grocers have several advantages when it comes to e-commerce. They benefit from a highly concentrated and localized market that removes some of the barriers to last mile delivery. Every home needs groceries and local competition is typically limited to four or five retailers so grocers may be able to consolidate multiple deliveries within the same neighborhood, much like a parcel carrier. Grocers also have the advantage of having a highly local network of stores that can be used to support both home delivery and curbside pickup. Key to their success in leveraging that asset will be choosing a right distribution strategy and matching that strategy with automation that enhances productivity, reduces fulfillment costs and can adapt to future changes in the market.

There are a number of strategies being employed by grocers today to introduce automation to improve the speed and efficiency of e-commerce fulfillment.

Hub-and-Spoke

Some grocers are developing centralized fulfillment centers that support multiple stores in a hub-and-spoke arrangement. The automated fulfillment center assembles orders for all non-perishable items and then bulk ships those orders to the stores where they are topped off with perishable items. Completed orders are then available for curbside pickup at the store or delivery to the home. This approach allows the fulfillment facility and automation system to be designed hand-in-hand and eliminates the space limitations imposed by integrating automation into existing retail locations. These facilities can also be designed to scale easily to accommodate continued growth by using modular automation solutions that enable a pay-as-you-grow approach. However, they are inherently capital intensive and can create an extra layer of transportation between the hub where orders are fulfilled and the store where orders are distributed, potentially limiting the ability to support expedited orders.

Bolt-on Store Automation

In many cases, it will make sense for grocers to bring automation directly to the store. Using compact, robotic automation technologies, they can create small fulfillment centers at the back of the store that automate current manual processes for non-perishable item picking while utilizing store inventory to top off orders with perishable goods. This allows them to fill complete orders from one location, reducing transportation time and costs. This scenario could support faster fulfillment times than the hub-and-spoke approach, but unless the store is physically expanded to support automation most locations will not be able to bring perishables and bulk items in close proximity to the automation system, limiting the productivity of manual pickers who may still need to go out into the store to complete orders. Creating a full fulfillment center may be possible in some locations, particularly high-volume locations with available space, by physically expanding the store. This requires some additional investment but could allow these locations to achieve order cycle times similar to a larger hub-and-spoke warehouse without the need to transport orders to the store.

Micro-fulfillment Centers

The shifts in the retail landscape created by e-commerce have created opportunities to convert abandoned or underperforming retail outlets into micro-fulfillment centers that serve the same area as a traditional grocery store with automated fulfillment for curbside pickup or home delivery. This strategy sacrifices in-store shopping so is particularly attractive to pure-play e-grocers but creates the opportunity to optimize the environment by efficiently integrating automated and manual picking. It allows grocers who don’t have an existing brick-and-mortar footprint within a particular area to move fulfillment closer to customers to reduce transportation costs and enable shorter delivery times.

The Automated Grocery Store

Rather than bolting on automation to the back of the store, some grocers are experimenting with moving it to the middle of the store, creating a new type of grocery store that combines automated e-fulfillment with traditional shopping. This is still an emerging concept, but early executions place an automated storage and retrieval system in the center of the store which holds the majority of the non-perishable items with perishable and specialty items located around the outside of the store. Shoppers have the flexibility to place their orders in advance or while in the store and can choose to pick their own perishable and specialty items or have the store complete their order for pickup or delivery. It remains to be seen how integrating automation into the shopping environment in this way will impact the consumer experience and how consumers will respond to that new experience. A less intrusive approach is also being piloted in which large kiosks within superstores streamline the pickup of smaller orders. When shoppers place their order, they receive a barcode which is then scanned at the kiosk and their order is presented to them within seconds. While this approach allows shoppers to get in and out of the store quickly, avoiding navigating large stores and going through checkout lines, it is not well suited for the typical grocery order.