Source: Ocado
Will robotic fulfillment centers reshape Kroger’s business?
Kroger announced that it has identified Central Florida and the Mid-Atlantic states as the sites of its new online grocery customer fulfillment centers (CFC) being built and operated by Ocado.
The grocer, which has committed to building 20 of the automated warehouse facilities (AKA sheds), announced last November that it was building its first CFC in Monroe, OH, a suburb near Kroger’s home base in Cincinnati. The facilities, which tout digital and robotic capabilities, are intended to propel Kroger to the top of the online grocery food chain in the markets it serves.
Alex Tosolini, Kroger’s senior vice president of new business development, said the grocer was “developing the retail model of the future” through its partnership with Ocado. “We will co-innovate with Ocado to develop the best possible experiences for our customers, leveraging advanced robotics technology and creative solutions.”
Kroger’s deal with Ocado is just one in a number of initiatives it has taken in recent years to be more competitive with the likes of Amazon.com, Target, Walmart and others.
The grocer, which announced a test of driverless cars to deliver online orders to customers’ homes last June, continues to emphasize Kroger Restock, a strategic initiative intended to “redefine the grocery customer experience,” according to Yael Cosset, the company’s chief digital officer.
More recently, the grocer announced a 13-store pilot program with Walgreens that will include a 4,000-square-foot Kroger Express store-within-a-store. The pilot locations in Northern Kentucky each carry an assortment of 2,300 products determined on a store-by-store basis using an analysis of customer data from Kroger’s 84.51º subsidiary. The Kroger Express shops will sell fresh produce, meat, dairy, frozen and the grocer’s Simple Truth natural and organic line along with other own-brand labels.
- Kroger and Ocado Announce Two Additional Sites for High-Tech Customer Fulfillment Centers – The Kroger Co./PRNewswire
- Drugstore/grocery pilot is two-thirds Walgreens and one-third Kroger – RetailWire
- Kroger to deliver groceries using driverless cars – RetailWire
- Ocado to automate Kroger warehouses in exclusive U.S. deal – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Where do you expect to see the most immediate impact on Kroger’s business from the Ocado customer fulfillment centers? Will Kroger’s automated warehouse approach create a need for retailers using store-based fulfillment models to make adjustments?
Poll
BrainTrust
Ken Lonyai
Consultant, Strategist, Tech Innovator, UX Evangelist
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
This one is easy. The two biggest potential benefits to an automated fulfillment distribution center are speed and accuracy, with labor savings third.
I think this is a good move, but I do not think it is as revolutionary as Kroger assumes it will be.
First, Ocado – which uses this technology in the UK – is by no means the UK’s leading online grocer. Moreover, its profitability has left a lot to be desired, which stands in direct contrast to the online operations of players like Tesco which mainly use store fulfillment models.
Second, online ordering is a growing part of the grocery market and Kroger is right to address it. But even 10 years out, it will not account for the majority of sales: those will be made in stores. Unfortunately, Kroger’s store experience leaves a lot to be desired and in many locations is in desperate need of improvement.
So as part of a wider package of measures, this will be helpful to Kroger. In isolation, I don’t think it will transform Kroger’s fortunes.
Of anyone attempting to combat Amazon and Walmart, I believe Kroger is the best positioned. I’ve been a fan of the Ocado partnership and this is the start of it moving from talk to action.
Ocado delivers a crucial link, but technology alone solves nothing. Kroger still needs to be price competitive, have an appropriate/available assortment, and attract sufficient customers to its offerings.
The immediate impact is a massive expense that will force them to step up the other elements I listed, else see their profits erode quickly.
I have seen many automated warehouses, installed and ran one and reviewed many others. To date they all have the problem of being too inflexible to cope with the ever changing customer demands. True technology is moving at a fast pace and we have to keep pushing the boundaries, but can Kroger afford to risk its business by pushing along this road too fast?
The warehouse will always beat the store in efficiency.
I have seen tech start-ups from around the world developing systems that make today’s automated warehousing look a bit like something from the Stone Age.
A store is made for shopping, not fulfillment. That is the biggest hurdle to overcome. Store fulfillment is a Rube Goldberg machine.
We can call this Kroger’s approach, but any retailer that is seriously interested in online fulfillment is already looking at the many options that are out there.
“Store fulfillment is a Rube Goldberg machine.” Wow! Well said indeed! Better trademark that before one of the fulfillment start-ups does.
From my experience, Kroger has always been about operations and logistics, with their customer logic focused on price and promotion data. So to me, if the whole operation had robots from top to bottom, including at retail, I’m not sure it’d be a lot different. Robots in the warehouse, robots in the stores, robots delivering to your house and of course, robots in the home office. Basically, a procurement-driven pickup and delivery system. That might actually be an improvement in terms of KPIs.
Given traditional grocers’ lack of focus on the customer for the last 50 years, Kroger’s robots could find themselves (if they’re not already) WAY ahead of the delivery system game. And after being trained in their system for so long, it could be exactly what the customer wants.
This will take a little time to work out the process, but there’s certainly the promise of reduced cost and increased speed. As retailers look to automate parts of the supply chain they’ll likely see those benefits every step of the way. If Kroger realizes significant cost savings over other models, competition will have no choice but to copy or continue to innovate to keep up. At the end of the day though, it’s about the consumer experience and how Kroger (or anyone) uses technology to create that value.
Today’s IP, a trick question: neither! Well perhaps not quite, but to me it points out the problems inherent with online for grocery and is a (yet another) reason why I’m skeptical it will ever be a substantial share of the market.
Local store fulfillment is problematic. I think we all agree it disrupts “normal” store operation — still the lion’s share of sales — and since it’s not centralized, it’s hard to achieve economies of scale and other efficiencies, but it also happens to be the best point for shipping perishables. So what’s the solution? A mixed model — warehouse for packaged goods, local for perishables? To my mind that would seem optimal in regards to maintaining quality, but I just can’t see the numbers working out.
Maybe. It may help in the short term, but in the long term Kroger needs to drive their own fulfillment centers and the hardware, software, logistics and savings that this will offer. Having a third party do this, might negate any savings which Kroger might realize.