Is online fulfillment from stores too complex for e-grocery?

Discussion
Photo: RetailWire
Jul 18, 2017
James Tenser

Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.

Supermarkets without a firm handle on on-shelf availability and store-level perpetual inventory had better think hard before committing to an online ordering/in-store fulfillment business model. Double-digit rates of out-of-stocks and item substitutions are the current norm in online orders picked in stores. For some, this could be a customer experience disaster in the making.

The same issue could also prove to be an Achilles heel for the announced Amazon/Whole Foods combination, if they fail to match the customer expectations on delivery accuracy that Amazon has established in other categories of merchandise.

The know-how to get this right does exist. On Walmart.com, click & collect shoppers can view and order items by store and see the counts of quantities available. Similar in-stock visibility or confirmation is built into the Home Depot, Lowe’s and Office Depot sites.

Real-time, store inventory visibility is essential for online grocery ordering systems, yet it seems to be the exception so far. For supermarket operators who have made a decision to compete in order & deliver or click & collect, a similar service standard represents a significant competitive opportunity.

Adopting a store-level, real-time, inventory management system with automated ordering and perpetual inventory is a high-ROI investment on its own. For any retailer who contemplates fulfilling online orders in the stores, superior inventory accuracy and visibility are even more essential. Your customer relationships depend upon it.

DISCUSSION QUESTIONS: Does in-store fulfillment of online grocery face the same or greater challenges than in other retailing channels? Do you believe that the systems able to capture real-time, store inventory visibility in the food category are advanced enough to assure a high level of order accuracy?

Braintrust
"I think Amazon has the chance to bring a level of execution to online grocery shopping that doesn’t appear to be in place yet."
"...part of that success [with delivery windows] is a result of market testing in areas where they have better fulfillment options."
"...the eco-conscious side of me hopes that these advancements and consumer shifts will lead to less fresh food being displayed and going to waste."

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28 Comments on "Is online fulfillment from stores too complex for e-grocery?"

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Paula Rosenblum
BrainTrust

Funny you should ask this question. Because of a knee injury, I had to use Instacart for a couple of months. At first it seemed addictive, but it got really tiresome … Publix in particular was always missing several items I requested (Whole Foods actually did a far better job). It got to where I had to say no substitutes but I still kept getting them. I’ve given up on Instacart, and my knee is better … but this is a real problem and I don’t see it going away any time soon.

Product just turns too quickly for inventory records to stay accurate.

Jon Polin
BrainTrust

As an online grocery shopper, it may be OK to receive only 19 out of 20 items I order unless that one missing item is the key ingredient for the dinner I plan to make for my guests that night. That is when a single out-of-stock item can spoil the whole experience. But inventory accuracy is only one of the challenges grocers face when fulfilling from stores. This is why we at StorePower tell grocers that they should be thinking from day one about the operational evolution of online grocery. To start, fulfilling from stores is OK; after all, you need to crawl before you can run. Over time, however, as e-commerce grows as a percent of overall business, grocers should be planning for an evolution along the lines of 1.) manual picking from within stores to 2.) manual picking from distribution centers or dark stores to 3.) semi-automated (partially-robotic) fulfillment from DCs or dark stores to 4.) fully-automated picking from DCs.

This playbook may not be exactly right for all grocers, but we encourage them to think along these lines.

Lyle Bunn (Ph.D. Hon)
BrainTrust

Does anyone really doubt that food retailing will be increasingly better served by technologies and some low-cost workers? Especially given that a return on time is increasingly valued by consumers.

Dick Seesel
BrainTrust

I think Amazon has the chance to bring a level of execution to online grocery shopping that doesn’t appear to be in place yet. I don’t want to judge an entire industry from my experience with Safeway last week, but it may be typical. While on vacation, I ordered groceries to stock up our rental house for a week. The order did not show up in the scheduled delivery window (in fact, Safeway was running three hours behind and I canceled the order) and would have been one-third short-shipped. What I thought would be a convenience turned out to be a customer service nightmare, after spending nearly an hour on hold to fix the problem.

Again, it’s a small sample size but the combination of stock-outs and late delivery does not exactly inspire confidence in the process. I believe Amazon has the capacity to make this work, and they won’t roll it out aggressively until they are ready.

Sterling Hawkins
BrainTrust

Supermarkets simply iterating with processes and technologies to “improve” inventory management and fulfillment won’t work. It takes entirely new thinking and a different approach that Amazon has set their sights on in a major way. I’m 100% with you here that Amazon will figure out how to make this work. Other retailers will be forced to catch up.

Keith Anderson
BrainTrust

As Paula’s experience underscores, the status quo is definitely not optimal. Customer-friendly substitution policies can help in the short-term, but retailers will need to continue to invest in better inventory management systems as demand for online grocery builds.

There is also the challenge of serving two masters with a single physical asset. Online grocers like FreshDirect and Amazon fulfill orders from fulfillment centers optimized for non-store operations, enabling better demand forecasting, more efficient order-picking and, ultimately, fresher perishables.

When online volume accounts for more than 10 percent of a store’s volume, it starts to have serious impacts on the in-store shopper’s customer experience and the overall store’s economics. Staying in-stock at the physical shelf is harder, labor management is harder and shoppers don’t like competing in the aisles with eager uniformed order-pickers.

Paula Rosenblum
BrainTrust

I’m not sure the problem is solvable. I think I wasn’t clear about that. You certainly don’t want to turn product any slower … and by definition, the faster it turns, the more out of whack the perpetual gets. Home delivery has to be a profitable enterprise, and I’m having a hard time visualizing that.

Art Suriano
BrainTrust

The article brings up good points. There is a definite need for supermarkets to offer online ordering and delivery services. Customers want it and grocers’ competitors are providing it. However, as a user of this service with two supermarket chains, there are some problems. Items out-of-stock are one, receiving the wrong item is another and sometimes items such as fruit, vegetables or meat wind up in the garbage because of poor quality.

There is a huge cost to providing this service with added staff, delivery drivers, delivery trucks and insurance. I feel today that some businesses are reacting too quickly to competition without thinking it through. The technology will improve and that will help control out-of-stock items, but grocers will also have to reduce errors like giving customers the wrong item as well as delivering poor quality items. Not only is this service costly for the supermarkets to provide, they lose out on impulse buying when customers do not come into their stores.

Richard J. George, Ph.D.
BrainTrust

As noted in the article, this potentially real differentiating factor for brick-and-mortar retailers over pure-play online grocery retailers does represent an Achilles’ heel. I am a strong proponent of BOPIS (Buy Online, Pickup in Store) primarily because research shows that the total market basket of BOPIS is larger than in-store only or online-only grocery shopping. Customers enter the store with empty baskets (collecting their groceries at the end of the visit). Empty baskets translate into the perception of more money to spend, particularly in those non-center store categories (think perimeter) that command high margins.

However, if the grocery retailer cannot execute the concept properly, it should probably not offer the service until it is flawless. This is not an area where the retailer can “roll and fix.” They need to get it right from the start.

Jasmine Glasheen
BrainTrust

E-grocery is reliable for dry and frozen foods, but produce is too ephemeral to be easily trackable via inventory management systems. After all, produce is a living thing and it’s tough to bag and tag a lifespan. Perhaps we need to change our expectations of online produce — making room to account for variables such as bruising and turning — instead of expecting it to function like dry goods.

Nir Manor
BrainTrust

Click and collect fulfillment in-store is extremely complicated in terms if on-shelf availability and stock management. If items ordered by shoppers aren’t available to collect in-store it creates issues like wasting the time of store employees and making the shopper less satisfied.

Grocery stores’ stock management and shelf availability are well known problems that most retailers haven’t been able to solve, and that some haven’t even been able to reduce. The average out-of-stock item level remains at 4 percent to 8 percent levels at most grocery retailers. This is also an issue for in-store shoppers but when we talk about click and collect these rates can kill it altogether.

Retailers have to improve these KPIs by using new technologies such as smart shelves in order to succeed with click and collect.

Manish Chowdhary
BrainTrust

Currently, consumers using in-store fulfillment may be accustomed to something being out-of-stock. The current expectations seem a little lower than in other retail channels. That expectation is going to change quickly. The need for real-time inventory visibility is growing with all online retailers.

Systems are becoming more advanced to meet these needs, maybe not as quickly as we would like. Having a 360 view of your inventory is extremely important. Even more important is having your inventory be accurate. This will be a challenge for online grocery retailers, but technology will start to catch up.

Adrian Weidmann
BrainTrust

Time from order to fulfillment and accuracy are directly proportional to inventory availability. Add to that the fact that a human fulfills these orders and you can expect errors and dissatisfied customers. It’s amazing to me how many issues we’ve discussed here over the years have lead back to inventory monitoring, availability, etc., and the number of problems and challenges that would go away if retailers and brands just knew where their stuff was at any point in time! It’s time for all products to become “connected.”

Gene Detroyer
BrainTrust

Why should we even expect in-store fulfillment to be successful? Fulfilling an online order out of a warehouse versus in a store are two different operations. Operationally they don’t match up. The focus of the jobs are different. The KPIs are different. The labor skills are different. In-store fulfillment only complicates inventory control in an area where stores aren’t terrific controlling it as it is.

Ben Ball
BrainTrust

It is probably a very good thing for all grocery retailers that Amazon decided to jump into this space fairly early on. Otherwise, the lousy experience traditional supermarket inventory availability and delivery/customer service are dishing out would have very likely killed the online order grocery baby before it ever reached adolescence.

Amazon will reassure online shopping junkies that the same level of service they have come to expect in other categories can be had in grocery shopping. Then other retailers will have to step up their inventory management and order accuracy or die. Fortunately for those traditional grocery retailers, the combination of affordable AI and IoT technologies can save them — if they take advantage soon enough. And “soon enough” is now.

Adam Silverman
BrainTrust

Omnichannel fulfillment, whether it is in grocery, specialty apparel or home goods, requires the same shelf-level inventory accuracy in order to meet customer expectations. Let’s face it — offering a “substitution” and having the customer agree to these terms is in the retailer’s best interest; the retailer deferring responsibility for accurate inventory. This won’t last long. It just takes one grocer to have accurate inventory and expectations will be set higher for everyone. Even if grocers get this right, inefficiencies in store fulfillment processes will suck out all of the profit. So what should grocers do? Continue to invest in their inventory visibility if they want to be relevant in omnichannel retail, but also begin to invest in store processes and solutions that make the picking and packing of items efficient. The store is not a warehouse and should be treated differently. With the right tools associates can be agile, picking and fulfilling items throughout their day. The alternative is a bulky fulfillment process borrowed from warehouse management that is wedged into the store as a stop-gap. Store fulfillment — from systems, to processes, to people, need to be re-imagined for the grocery market.

Jett McCandless
BrainTrust
AmazonFresh is already extremely accurate with delivery windows, though part of that success is a result of market testing in areas where they have better fulfillment options. The challenges being faced by online grocery are similar in some ways to traditional retail, but very different in some key areas. For example, perishable items have to be kept in proper storage and they have a limited shelf-life. If a traditional retail product stays on the storehouse shelf it’s not a big deal; if a bag of apples does, they eventually go bad. Another issue is that people tend to buy groceries so they can prepare a specific recipe. If one item ends up out of stock they won’t wait until it’s no longer on back order, they’ll just go to a local store and at that point they’re likely to cancel their entire online order. This creates a negative customer experience, which lessens the possibility of return customers. Systems are close to being able to assure high levels of order accuracy, but it’s still an early-stage technology. There are going to be mistakes and those mistakes might seem small in the moment, but they add up fast. In order to maintain… Read more »
Herb Sorensen
BrainTrust

The fulfillment problem is just the ignored tip of the iceberg. The entire brick-and-mortar system is built on PALLET logistics, delivering pallets of merchandise assembled in warehouses to stores where paid stockers put the stuff on shelves. Amazon’s entire logistics is built on ITEM delivery to individual shoppers, not to stores.

The brick-and-mortar retailer’s entire model is heavily dependent on UNPAID STOCKPICKERS, aka shoppers, to do that final “picking” and taking it to checkout for purchase. This is why I refer to brick-and-mortar retailers as merchant warehousemen. They do not SELL anything to anyone. They simply keep the WAREHOUSE, aka store, stocked, and other than stocking and COUNTING the money and sales, they are fairly ignorant of the actual mental/physical PROCESS by which shoppers sell to themselves.

It’s too complicated! 😉

Simon Jones
Guest
1 month 3 days ago

This is the best summary of the reality of store inventory visibility and accuracy, or, rather absence thereof I have read, and the perfect description of the current situation in most grocery stores worldwide.

gordon arnold
Guest
Online store shopping and delivery is still new to the market. Companies that invest in this will need to be open to changes that include store floor layout, enhanced logistics software and closer communications with vendors. The fact that critical data files that are not compatible with one another is going to be the largest problem facing the Information Technology departments out there. As for store operations, the long overdue department prioritizing projects will soon determine just how unprepared grocery retailers with an entrenched tasking prime directives truly are. A corporate “make it work with what we have” approach will cut deep into profits and customer satisfaction index. To make this more complex, the need to know where inventory is in the store will turn drudgery into dread for the merchandisers and order pickers. All of this is more than most grocers can handle. Most attempts will be put on the back burner due to profit erosion. Setting the delivery fulfillment segment as a company or division with its own legs might be the smart idea. This will allow multi store shopping for one or more orders and make all aspects of the project far easier to track with current… Read more »
Ralph Jacobson
BrainTrust

I have to smirk just a bit when I get to thinking about this topic. There are certainly some great, innovative leaders in the grocery biz that are making this in-store fulfillment challenge a reality. However, the vast majority of retailers still have very basic out-of-stock conditions in their stores without the added pressure of fulfilling online orders. The same issues I had as a store manager in the 1980s are today still haunting the industry.

Bottom line, before you set out to disappoint even more shoppers with stock-outs, investigate order optimization technologies to take the “gut feel” out of your business and get your store in-stock for the in-store shopper. THEN you can begin to think about online order fulfillment.

James Tenser
BrainTrust
Some superb observations on this thread – from both the retail operator and the “informed consumer” perspective. I’ve been arguing vehemently for some time that store-level inventory accuracy is the central discipline for success in supermarkets. Only a handful of chains have the skills in place to maintain a true store-level perpetual inventory in real time with computer-generated ordering. But the existence of that handful – among them Sobey’s, Wegmans, Price Chopper NY – is evidence that the challenge can be addressed with practical measures. Let’s face facts: In-store order fulfillment introduces an added layer of chaos. In a store with poor or marginal inventory accuracy, this can lead to even worse on-shelf availability. A digital ordering platform that’s not “aware” of actual item availability at the store where the order will be fulfilled is a virtual guarantee of missing or substituted items. Here’s where I beg to differ with Paula a little bit. Grocery inventories, which are re-order dominated, shouldn’t suffer from widening inaccuracy as turns increase. This is a major difference from fashion categories or even most hard lines. In fact, I would argue that the high frequency of orders actually provides an opportunity to sharpen the PI… Read more »
Mohamed Amer
BrainTrust

Thanks Jamie for triggering this lively thread. We get so far down the potential path that we step over core building blocks. There are some basic activities that have to happen with great efficiency due to the large volumes moved in grocery and the high ratio of fixed to variable costs in the brick and mortar business. In-store PI goes from good to have to must have once the chain moves to a hybrid physical and online operational environment. No amount of scaffolding can keep a rickety foundation from collapsing under the sheer weight of layering the latest set of brilliant new ideas.

Alex Senn
BrainTrust

To Paula Rosenblum’s point, the problem I faced with my online order from Stop & Shop’s Peapod is that the groceries I was used to, like a full bunch of bananas, seemed like baby sized. The bag of Brussels sprouts I had normally gotten was half the size for just as much money. It did come in time, and I wasn’t ordering insane ingredients, but the expectation and reality were still distorted.

It shouldn’t be too hard to do in reality. There have been systems doing this forever. Now, with advanced systems like Epic Commerce, A.I. can utilize the in-store availability to suggest new products or even auto-reorder. The retailers/grocers not using this type of technology, at least at the omnichannel level, are set for a downward spiral. Consumers expectations are only growing and these grocers have to invest in their technology stack equal to anything else they are doing.

Shep Hyken
BrainTrust

The concept of in-store fulfillment of online retailing is going to become, if it is not already, “table stakes.” If you choose not to be proficient in this area you may be at a competitive disadvantage. Accept it or not, a grocer — or any retailer — is competing with Amazon, who sets the bar for fulfillment.

Kenneth Leung
BrainTrust

I wonder if the best way to do in-store fulfillment is to maintain separate stock count for online in the store for high velocity items, kinda like airlines increasing flight time estimates to increase ontime departure. The nature of shelf inventory in stores means you can’t be 100% accurate all the time in the system. With online orders being critical for completeness, raiding store shelves ahead of in-store customers doesn’t help with store experiences either. Analytics should be able to ID the fastest turning items that are most often missing from e-commerce orders, and retailers need to hold stock accordingly.

Jeff Miller
BrainTrust

Online grocery of certain items like fresh fruit and veggies and even specific cuts of meat that people will want to select will have greater challenges than other grocery items like toothpaste and of course things like apparel. There are systems in place and they will improve over time to assure accuracy, but the question is, will the companies invest in them when they don’t see ROI?

A bigger question and something that the eco-conscious side of me hopes is that these advancements and consumer shifts will lead to less fresh food being displayed and going to waste. I know the stats of American shoppers choosing over and over again to prefer a fruit selection that looks full but that “marketing” tactic leads to huge waste that sadly is not allowed to be donated in many cases. We still have people who don’t have access to fresh foods and we still overproduce and then throw away. Maybe online orders and pickup will help over time.

Michael La Kier
BrainTrust

In this day and age store-level, real-time inventory management is table stakes. But that does not always connect with automated ordering across the entire spectrum of SKUs at at grocer. Direct store distribution — and retail employees themselves — can be guilty of “stuffing the aisle” and products past the expiration date create a challenge for e-commerce fulfillment from live retail stores.

wpDiscuz
Braintrust
"I think Amazon has the chance to bring a level of execution to online grocery shopping that doesn’t appear to be in place yet."
"...part of that success [with delivery windows] is a result of market testing in areas where they have better fulfillment options."
"...the eco-conscious side of me hopes that these advancements and consumer shifts will lead to less fresh food being displayed and going to waste."

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