A SHOPPER’S GUIDE TO E-GROCERY FULFILLMENT CONTENTS

2 DISRUPTION COMES TO THE GROCERY STORE

E-commerce has been a highly disruptive force in the retail sector over the last ten years, rapidly growing to account for up to 20% of total sales. The grocery sector has largely been immune to this disruption with only about 3% of grocery spending in the U.S. occurring online in 2019.

That is now changing — and quickly. Demand for e-grocery services is accelerating and multiple sources predict the industry is on the cusp of the same type of disruption other retail sectors have already experienced:

• Online grocery sales in the U.S. is growing by 15% this year according to an analysis from Bricks Meet Clicks.

• Nielsen and the Food Marketing Institute project that consumer spending on e-grocery could reach $100 billion by 2022 — triple what it is today.

• A research study from Edge by Ascential projects the e-grocery sector will experience a compound annual growth rate (CAGR) of 13% through 2024, increasing total online sales to $162 billion.

Nielsen and the Food Marketing Institute project that consumer spending on e-grocery could reach $100 billion by 2022 – triple what it is today.

3 REACHING THE LIMITS OF MANUAL PICKING

Grocers have been meeting current e-grocery demand—and stoking the market — by employing manual pickers, essentially surrogate shoppers, who travel up and down supermarket aisles along with other shoppers pulling orders. But this approach is labor- and time-intensive and because the market is not willing to absorb the full cost of order fulfillment, is forcing grocers to sacrifice profitability to remain competitive in the e-grocery space.

With their oversized carts, surrogate shoppers also create congestion in store aisles that negatively impacts the shopping experience for other consumers. According to industry sources, a grocery store will start to feel congested when just 6-8% of purchases are e-commerce orders fulfilled by manual pickers. That’s a level some stores are already at and most will reach within the next two years. Grocers who continue on the path of using surrogate shoppers to pull e-commerce orders from store shelves risk growing their e-commerce business at the expense of more profitable in-store sales.

According to industry sources, a grocery store will start to feel congested when just 6-8% of purchases are e-commerce orders fulfilled by manual pickers.

4 REACHING THE LIMITS OF MANUAL PICKING

The Need for

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.

5 REACHING THE LIMITS OF MANUAL PICKING

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.

6 REACHING THE LIMITS OF MANUAL PICKING

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.

7 E-GROCERY FULFILLMENT STRATEGIES

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.

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. 8 E-GROCERY FULFILLMENT STRATEGIES

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 without the need to transport orders to the store.

In many cases, it will make sense for grocers to bring automation directly to the store. 9 E-GROCERY FULFILLMENT STRATEGIES

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.

10 E-GROCERY FULFILLMENT STRATEGIES

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 bar code 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.

11 E-GROCERY AUTOMATION TECHNOLOGIES

As in other distribution operations, groceries have a range of automation solutions to choose from. The best solution will depend to a degree on the selected e-fulfillment strategy, but as with e-commerce automation in general, grocers should seek out solutions that are flexible, data-driven and rob otic to ensure they won’t become obsolete as the market changes and can leverage new technologies as they emerge.

Flexible solutions are those that can scale easily and adapt to change as it occurs. Data-driven solutions deliver the intelligence to better manage product flow and have the capability to incorporate machine learning that enables them to self-optimize. Data-Driven Robotic solutions are required to increase the productivity of scarce human resources and drive down fulfillment costs. Flexible While there are multiple niche solutions being developed today to capitalize on the FUTURE-READY growth in e-grocery fulfillment, such as the kiosk discussed previously, the primary automation solutions being used or considered are either -assisted picking or AUTOMATION goods-to-person automation systems.

Goods-to-person picking is a concept that has been widely adopted in e-commerce and multi-channel to enable higher productivity and faster order fulfillment times. Instead of pickers walking up and down warehouse aisles to pull Robotic orders, the goods-to-person system allows the picker to remain stationary, with an automated storage and retrieval system delivering the products they need to fulfill the next order as it is needed. Pick time is thus reduced significantly, and accuracy is improved, while pickers experience less fatigue

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Robot-Assisted Picking

Robots are being introduced into grocery stores to automate a variety of functions, from cleaning floors to unloading trucks. They are also being used to support and supplement e-fulfillment, particularly in regard to store pickup.

One approach is robotic-assisted picking in which a robot guides the picker through the store to optimize travel based on the location of the items to be picked and allowing multiple orders to be picked at the same time. The robot leads the shopper through the aisles in the most efficient manner and even guides the picker on how to package the order, determining which SKUs should be put into which grocery based on criteria such as the maximum weight for a bag, crushability and whether items need to be segregated by temperature.

This approach allows to be added with minimal disruption and investment, but ultimately doesn’t address the congestion issue as e-commerce orders continue to grow.

Alternately, some retailers are experimenting with creating a goods-to-person picking environment in the store. Automated mobile carts collect items from a warehouse- style storage space within the store and bring them to pickers at pick stations for order assembly within a section of the store. Orders are then topped off with fresh items by shoppers. For stores that aren’t fully utilizing their existing space, this may prove to be an attractive alternative.

13 E-GROCERY AUTOMATED TECHNOLOGIES

Shuttle Systems

Shuttle systems rely on a combination of robotic shuttles and lifts to enable products to be stored both horizontally and vertically in bins, or trays. Each horizontal row of the system is served by one or more shuttles, depending on throughput requirements, which travel down aisles between each vertical row to access products deep within the row. The lifts then lower the selected bins or cartons to conveyors, which feed stationary order assemblers.

The density, throughput and capacity of shuttles are well-suited to e-grocery fulfillment in hub-and-spoke and micro-fulfillment applications. However, the large number of moving parts in these systems does contribute to high maintenance requirements, which are amplified in distributed applications such as e-grocery fulfillment. They may require dedicated and trained maintenance specialists on-site to deliver a high degree of availability, which adds significantly to their cost of ownership.

In addition, because the shuttles must travel down aisles to retrieve products, each vertical row of products requires its own aisle. This limits density relative to other solutions that don’t require aisles. This also means each new vertical row of storage added requires its own aisle. While the solution is scalable modularly, the size of each module is larger than with other solutions, which could prove to be a problem in bolt-on or micro-fulfillment applications.

14 E-GROCERY AUTOMATED TECHNOLOGIES

AutoStore

AutoStore is a compact, innovative robot-based automated storage and retrieval system that supports goods-to-person or goods-to-robot picking. Its combination of density, reliability and scalability makes it an ideal solution for virtually any e-grocery fulfillment strategy.

The AutoStore system consists of four main components: a three-dimensional storage grid, storage bins that contain product inventory, a team of robots that retrieve bins, and ports that serve as the interface between the operator and the AutoStore system. The system has low maintenance requirements and each robot can reach any bin in the system, allowing individual robots to be taken off-line for maintenance without shutting down the system. Fast-moving products naturally migrate to the top of the grid to enhance retrieval times.

AutoStore’s unique cube design, in which storage bins are stacked vertically up to six meters high, represents the most space efficient automation system available today. The architecture of the system also allows a high degree of design flexibility. It can be constructed around pillars and in irregular shapes to take maximum advantage of available space within a grocery store. Unlike shuttle systems, port locations are

flexible and can be placed anywhere within the grid. AutoStore also provides a high is the world’s leading AutoStore integrator with over 160 deployments across 19 countries. degree of scalability in storage and throughput. Additional storage bins, robots or pick stations can be added at any time with minimal disruption to operations.

15 BEYOND THE HARDWARE

In some respects, getting the hardware right is the easy part of e-grocery fulfillment. The software that both manages the automation system and orchestrates activities between automated and manual picking can make or break the success of an installation.

Here, e-grocers can benefit from the experience of other e-commerce companies who have learned first-hand the benefits of an integrated automation control and warehouse management system. While e-grocery represents fulfillment challenges in regard to the range of different types of products that must be assembled to complete an order, it’s common within many warehouses to support automation systems with some degree of manual picking.

That has proven to be a challenge when the AutoStore control system is not integrated into the warehouse management system (WMS). In those cases, the AutoStore control system must be manually integrated with a third-party system and this can create issues with order management and synchronization that will be particularly pronounced in e-grocery applications.

Look for automation control software that is included as a module within the WMS platform as that will allow a single system to orchestrate all of the processes and systems within the fulfillment center. Operating within the WMS, the automation control software should be capable of managing all of the functions needed to run Look for automation control software the automation as a “black .” Local inventory management components and sophisticated material flow strategies can leverage the overall system performance that is included as a module within the in the best possible way. WMS platform as that will allow a single system to orchestrate all of the processes and systems within the fulfillment center. 16 BEYOND THE HARDWARE

Another advantage of using a WMS with fully integrated automation control is consistency in the operator interface across various processes and systems. User interface design is an often-overlooked aspect of automation software, but it has a significant impact on accuracy and productivity.

Interfaces should be designed to present necessary information simply, visually and intuitively to minimize training and maximize productivity. When interfaces are consistent across different processes, workers can move fluidly between automated and manual picking. While the interface is standardized, the information presented to operators should be customizable based upon the specific application and optimized for ergonomics and simplicity.

Other features that could be valuable include 3D visualization and business intelligence tools. Three-D visualization present a simple, holistic overview of the system at any point in time while business intelligence tools provide a dashboard view of KPIs and simplify system health monitoring.

Finally, consider the experience of the solution provider and maturity of the software. Solutions providers that have established implementation and startup processes proven across multiple applications may be better equipped to help grocers navigate the complexity of e-grocery fulfillment. Shortcuts within the implantation process can create long-term problems when they fail to consider all possible use cases and Solutions providers that have established exceptions. implementation and startup processes proven across multiple applications may be better equipped to help grocers navigate the complexity of e-grocery fulfillment. 17 TAKING THE NEXT STEP

With e-grocery sales ramping up, grocers must finalize strategies for supporting same-day home delivery and curbside pickup. While there are multiple options to use the existing store network to support e-grocery fulfillment, automation is required to provide the necessary productivity and speed. Goods-to-person automation systems have been proven in many warehousing applications and provide the density and flexibility required to support e-grocery fulfillment.

Both shuttle systems and AutoStore support goods-to-person fulfillment. Shuttle systems offer much higher throughput while AutoStore provides greater density in most applications, has lower maintenance requirements and is easier to scale.

While several integrators support AutoStore, the e-grocery fulfillment experience and software maturity of the integrator can have a major impact on the success of an implementation. Working with an experienced integrator with automation control integrated into the WMS platform, helps ensure e-grocery fulfillment automation is implemented in the most efficient manner possible and delivers the desired performance.

The e-grocery fulfillment experience and software maturity of the integrator can have a major impact on the success of an implementation.

18 TAKING THE NEXT STEP

About Swisslog Automation

We shape the future of intralogistics with robotic, data-driven and flexible automated solutions that achieve exceptional value for our customers. Swisslog helps forward-thinking companies optimize the performance of their warehouses and distribution centers with future-ready automation systems and software. We are the world’s leading integrator of AutoStore with more than 160 deployments worldwide. Our integrated offering includes consulting, system design and implementation, and lifetime customer support in more than 50 countries.

Swisslog is a member of the KUKA Group, a leading global supplier of intelligent automation solutions with more than 14,000 employees worldwide.

For more information, contact [email protected].

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