Publix, Kroger jockey for online customers in ever-changing Florida market
Publix, Kroger battle for online sales after COVID surge. How will delivery service look like in the future?
As Publix and Kroger battle for more online sales, their efforts could be well timed. A report by industry analysts shows overall online grocery sales expanded 4.7% in August this year compared with a year ago.
It could be too soon to determine whether the online business at grocery retailers, which grew during the recent COVID surge, will continue into next year as the pandemic is expected to wane.
According to a Brick Meets Click/Mercatus Grocery Shopping Survey, the overall U.S. online grocery market generated $8.6 billion in sales during August.
The report breaks down three ways customers order food online:
Ship-to-home, in which items are sent via parcel delivery service, much like Amazon does.
Delivery, in which groceries are delivered to a home via specialized delivery services, much like Kroger Deliver, or Publix's use of Instacart.
And pickup, in which customers order online then pick the items up at the store.
The year-over-year sales gain was driven by a strong uptick in the number of Americans going online and using a pickup or delivery service to satisfy their essential grocery needs, according to Brick Meets Click partner David Bishop.
“COVID’s resurgence has clearly contributed to the August sales gain,” Bishop said in a press release. “While retailers don’t control the external market forces, such as the new wave of COVID cases that continued through August, they can choose how effectively their business is positioned to respond to the current circumstances that are disrupting their customers’ lives.”
Bishop said ship-to-home orders as of August generated just under one-third of all online grocery orders. And spending per order is significantly lower as compared to delivery and pickup.
"And while it's true that delivery is more popular in the most populated markets (of more than 1 million people), the insights reveal that pickup still captures a larger share of the orders in that market. "The point is pickup remains the more popular or preferred option for customers to use – whether compared to delivery or ship-to-home," he said.
Kroger's Groveland facility is now delivering groceries to customers in Orlando, Tampa and Jacksonville.
Kroger and its Ocado bots ratcheting up the pressure in Florida
Kroger Delivery’s general manager, Brandon McBurney, said sales of groceries have been better than expected from its new warehouse in Groveland, which also has spokes in Tampa and Jacksonville and can deliver anywhere from Sarasota to Cocoa and Jacksonville.
He oversees the automated 375,000-square-foot fulfillment center, using Ocado Solutions USA Inc. – a machine-learning robotic system. The facility’s opening in June was Kroger’s initial footstep into the Florida grocery market where Publix has typically dominated.
The closest brick-and-mortar Kroger store from the Florida border is in Waycross, Georgia, less than a two-hour drive from Jacksonville. Meanwhile, Publix announced plans to lease space for a store in Kentucky, about 100 miles from the Cincinnati-headquarters of Kroger supermarkets. McBurney said a physical Kroger store is something the retailer is always looking at doing, but there are no announcements for a store in Florida at this time.
There are 500 Ocado bots through Kroger’s Groveland’s hive filling 140,000 totes with groceries bound for delivery trucks.
In a recent media tour, he gave several reasons he thought Kroger’s outlook remains bright for the Florida market and reflected Kroger’s reputation for efficiency and innovation.
He said the Ocado bots offer warehouse-to-home delivery with just 5-second touches by humans per grocery item versus competitors using third-party contracted shoppers, who take about 30 seconds per item to shop in stores. The machine-learning robots, he said, know how to keep fragile items from getting crushed by heavier items, outdoing in-store clerks who sometimes bag items incorrectly.
With the help of @OcadoGroup CFCs and incredible tech, customers are receiving fast & friendly deliveries of the freshest food. Can’t wait to bring that experience to even more Americans as we roll out to many more markets! Congrats @KrogerNews (& love the new icon!) (2/2) pic.twitter.com/xQkBYmIdC1
— Luke Jensen (@LukeJensenOcado) September 13, 2021
He noted that Kroger Delivery has its own trained employees driving refrigerated trucks and bringing customers' orders for everything from ice cream to beer, while competitors use contractors driving their own cars to deliver food.
“This is where the magic happens,” McBurney said during the tour, as he turned a corner on the highest point in the warehouse, Level C, in the Kroger Delivery’s warehouse. He pointed to Ocado bots as they rode along a 3D grid containing all of the 31,000 items for sale online. He called the structure the hive.
The upright rectangular bots have arms inside their bodies that pick up each item purchased from an online-customer's shopping cart. The wirelessly activated bot then places the items into a plastic tote bin that winds its way through a three-layer system to carts on the ground level adjacent to the loading docks.
There are multiple stations where human workers assist the automation and delivery process. Between warehouse workers and delivery drivers, Kroger plans to hire 700 people.
The hive has an ambient side and a refrigerated side, each one the size of a football field, with the side for non-refrigerated items 21 totes high. There are 500 Ocado bots to fill 140,000 totes – and the facility is still not at full capacity.
“As we build the business, we can add more bots,” McBurney said, adding that at full capacity twice as many bots could be filling orders.
After the totes are loaded into the carts on the ground, the carts are placed into Kroger delivery trucks, which have dual compartments – one for frozen and refrigerated items from ice cream to romaine lettuce, and another for dry goods. The trucks can deliver items up to 90 miles from Groveland or its two spokes in Tampa and Jacksonville. Van drivers will be guided along the fastest routes with cutting-edge logistics technology.
McBurney would not disclose the cost of building the first distribution center in Florida – the first in the United States was near Cincinnati. But he did say nine more Ocado-enabled distribution centers were planned across the country.
“The reason we chose Ocado is their experience selling groceries online for 20 years,” he said.
Growing influence of Instacart
Publix did not respond to emailed questions for this report. Both Publix and Kroger have utilized Instacart for home delivery.
An Instacart spokesperson said, “As a retailer enablement platform, we’re offering a unique and differentiated approach to help partners compete and serve their customers,” and adding, Instacart does not share financial details related to its retail partnership contracts. The spokesperson said, “We have a very robust footprint in Florida, and we see a lot of opportunity in the Florida market.”
The online home delivery business represents 8% of all sales at U.S. supermarkets, according to Instacart, which wants to increase that market share to 30% within five to 10 years. Today, Instacart is available to more than 85% of U.S. households and 80% of Canadian households.
The supermarket industry in total for North America experienced record rates of sales growth, generating annual sales of $2.113 trillion in 2020, up from $1.893 trillion in 2019, according to Progressive Grocer’s annual sales figures released in May for the top 100 grocery companies, both public and privately held. Kroger ranked third and Publix ranked 11th on the PG100 list.
Instacart partners with more than 600 national, regional and local retailers, including unique brand names, to deliver from nearly 55,000 stores across more than 5,500 cities in the U.S. – including all 50 states – and Canada, according to Instacart.
Instacart offers pickup services for more than 120 grocery partners across more than 45 states and more than 4,500 stores.
Instacart has also enabled EBT SNAP online payment nationwide with more than 30 retailers, including Publix. This helps eliminate transportation barriers for low-income families.
San Francisco-based Instacart has more than 500,000 shoppers that fulfill orders. They drive to stores, shop for grocery items, check out and then deliver to customers’ doors. Instacart charges a delivery fee and sometimes takes a commission while gathering data on shopping habits.
In February 2019, Instacart started to pay shoppers a guaranteed minimum $7 to $10 per full-service order and $5 for delivery only and they can view the batch payment prior to accepting the batch. Its shoppers can also receive tips from customers.
Could Instacart warehouses further disrupt the industry?
New technology continues to disrupt the traditional and the e-commerce supermarket business. In July, Instacart unveiled the first phase of a next-generation fulfillment initiative using the Fabric system. Similar to Ocado, it's designed to bring automated technology solutions to retailers across the U.S. and Canada.
"As part of the new initiative, we announced a multi-year strategic deal with Fabric as a fulfillment automation partner," the Instacart spokesperson said without naming potential retailers.
The Fabric system, she said, will offer "an even faster, more effortless online grocery shopping experience for customers." This new offering could enable supermarket retailers to continue to innovate and compete.
According to a Financial Times report in February, Instacart had been researching ways to automate the picking process and in spring 2020, Instacart sent out proposal requests to at least five companies that offer robotic systems, including Fabric, that would pick goods from purpose-built “dark” warehouses instead of store shelves.
Once orders are carefully packed, shoppers will deliver orders to customers' doors or place them in staging areas for curbside pickup, a move Instacart says will help reduce some of the things that make in-store shopping cumbersome for Instacart shoppers, like crowded store aisles, out-of-stock items and long checkout lines.
Over the long term, Instacart said partnering with retailers to bring next-gen fulfillment technologies together with the personal touch of Instacart’s shoppers will create an even more seamless online grocery experience that’s faster and more affordable for customers and delivers even more value and growth to retailers.
While this might revolutionize Instacart, its grocery store partners may fear Instacart could become more like a competitor, such as Amazon, which takes online orders, fulfills them and provides home delivery, the Financial Times reported.
