Tesco Tests Dedicated Sites for Online Grocery Orders
Tesco announced plans to open a second Dot Com Only Store
(DCOS), a dedicated location for fulfilling online grocery orders, so that
it can free up space at busy store locations.
The chain has used a system
where products are picked in-store and then delivered by van to customers
in the U.K. With the dedicated facility, Tesco is looking to see if it can
improve efficiencies all around.
According to a report by Logistics
Manager, the DCOS is laid out exactly the same as an
operating Tesco store but without the customers. Personal shoppers go through
the store picking product for scheduled deliveries. Shoppers work on up to
six orders simultaneously.
Discussion
Questions: Do you see an advantage of one system for online grocery fulfillment
over another — in-store vs. dedicated facility? Would Tesco benefit by
operating an online grocery service in the U.S. in conjunction with its Fresh & Easy
division or as a standalone business?
This is sort of the million dollar question for grocery when it comes to cross-channel. But it all comes down to volumes. For a retailer just starting out and unsure what kind of volumes they’ll see, it makes sense to just lay it over existing operations as much as possible.
But what you really need to do, and most retailers I’ve talked to have not done this, is set volume triggers, and plan out the evolution. “When our order volume reaches X across our chain, it’s worth it to invest in a dedicated facility” or “When we’re delivering X times per week across a district, then we need to consolidate.”
Understand what drives the cost (and efficiency) in the operation, and set thresholds for re-evaluating your processes so that you aren’t always playing catch-up.
The answer to the question is “It depends.” But that doesn’t mean it shouldn’t be attempted. If you have a solid plan in place, I think this will ultimately be ante in grocery retail.
The name of the game is efficiency and if the test shows that the efficiency produces enough savings to cover the cost of a separate location, then it will be a great move. But as the item says, it is a test; so Tesco is not sure of final results.
Only time will tell.
Um, I thought this was the only way to do online grocery. You mean Tesco actually picks from the store? How efficient is that? The online grocery model is weak to begin with, now they are burdening the already busy stores with online orders? If anything I would say Tesco has come into the present with dedicated logistics for online grocery.
When the in-store order pickers start knocking down elderly shoppers in the aisle, it’s time to consider moving online order fulfillment to a separate facility. This is not exactly a new thought process for multichannel grocers.
Tesco’s reported decision to lay out its “dot com only store” to match its retail stores seems odd to me, however. A stand-alone fulfillment facility should be designed for maximum efficiency, not merchandising optimization.
Kudos to Tesco!
Actually, this approach is something that I wanted (and may still) raise in a BrainTrust query.
I think we are very near the time when retailers need to start looking at the other end of the horse. I have recently watched a few presentations on the Amazon distribution network. We tend to think of them as a virtual presence, but they also have a well established physical network. And of course, Walmart has built their dot com presence on top of a well established distribution model.
The Tesco move recognizes that the traditional marketing and distribution roles of the store are changing. This seems especially likely in highly populated areas (remember England is an island) where delivery can be achieved economically or customers can even stop by for pickups. Combining a strong website with easy delivery through a widespread distribution network offers the customer the best of both worlds. It also opens up a great channel for manufacturers to reach consumers as they make purchase decisions. When they click on Brand A, Brand B can try to foil the sale with directed discounts. This is probably a little too direct, but the point is that by moving the decision making to the virtual world, a whole new level of flexibility is introduced for marketing.
If Tesco has the data on volume and location, then establishing a Dot Com store can be successful. This is also an interesting move because it indicates that some solutions may work in some locations and not all solutions work everywhere.
Sounds like a good first step for Tesco. There is a lot to learn in how people will shop online–there have been several iterations here as retailers begin to understand shopper priorities. Several regional retailers offered home delivery, but dropped this in favor of in-store pick-up, which is growing in acceptance. Shoppers like getting all the bulky, heavy items, cleaning supplies, canned goods, etc, ready for curbside pickup. But they still may shop in store for perishables–meat, fruit, prepared meals, deli and keep an eye what’s in the aisles.
In larger urban areas, Peapod and others in home delivery have had a learning curve as shoppers learn how to manage this shopping experience. Smart of Tesco to study new shopping patterns for online, and learn value shoppers place on this service, then evolving to meet shopper needs.
Online shopping is the future. That includes online grocery shopping, particularly in more densely populated areas and for “weekly” stock ups. While there are many advantages for the consumer, the game changer for the retailer is how inventory is handled and how labor is minimized.
Tesco’s decision on how to operate an online business is logical and operationally sound. For the same square footage and considerably less labor, this facility can service the cream of the Tesco customers in a more profitable scheme. Inventory turns can be greatly increased and because of the online factor, restocking can be executed before product goes out of stock.
From my own experience, our regular online grocery order averages between $150 and $200. Between those Fresh Direct orders, we go to D’Agastino’s for fill ins of milk, bread and a few specialties. The total expenditure of the fill ins (5 or 6 trips) is less than $60. Who is making more money on me? Fresh Direct with no store overhead and no store labor or D’Ags?
The issue breaks down into two areas. First is the layout of the picking facility. If there are no customers in the store to pick from shelves, it is a waste of labor. First you have to stock the shelf and then pick the item all the while walking past many items not on the order. A far better approach is to stock the items in case flow rack. This reduces the stocking labor and increases the picking. Smaller remote picking facilities reduce the delivery drive time which unless you have concentrated customer demand, significantly increases this cost.
Second key area is the picking facility location. Placing this facility in a retail location only adds lease cost. Why pay for retail space when consumers never enter the facility? The only argument that supports locating the facility a retail area is if you have customer pickup of their order.
Not to pile on here, but obviously the future belongs to the efficient–efficiency being defined as order efficiency; supply chain efficiency and–as others have pointed out–pick and delivery efficiency.
I believe you have to do both. In all retail, not just grocery, but especially in grocery. From our most recent insights, consumers here EXPECT both. You have generations of people that have an almost rote response to physical shopping, but simultaneously have discovered the ease of the online experience and enjoy toggling back and forth between the two. It’s hard to imagine, with rare exception and again, especially with food, not having a live retail experience.
Having said that (anyone see the finale of the Larry David show?–sorry, I digress), I LOVE that Tesco is at least trying an on-line only fulfillment center! Think of how much they’re going to learn…and in that sense, they’ll be eons ahead of the industry because of it. Kudos for them on the innovation side.
This is one of those issues where there is a massive difference between what works in the UK and what works in the US. Kudos to Tesco???!!! NO NO NO NO NO. This move is simply and emphatically not relevant to an American market.
While I strongly believe that the UK model should be distribution from a central point rather than from stores (I will refrain from re-hashing my numerous reasons for this viewpoint here but will happily do so privately), the same criteria don’t necessarily apply in the US. The most important thing, as every RW contributor knows I’m sure, is fast and prompt delivery with few, if any, omissions or ridiculous substitutions (which Tesco is renowned for). This means fairly tight areas if perishables are included.
Amazon is OK with central fulfillment and sub-contracting delivery because none of their products are likely to disintegrate into inedible mush due to delays or incompetency. The NY delivery organisation (Fresh Direct is it?) works because it only supplies a reasonable and manageable area. American online grocers need to follow its pattern, not Tesco’s. Or have a look at Ocado in the UK–they’ve been delivering from a central warehouse from Day 1 with huge success. It is fairly well known that Tesco shoppers switch as soon as Ocado moves into their area. Because Ocado supplies products from Waitrose, they co-exist with alternative systems where customers can either shop online from Waitrose stores or go into the store, choose what they want and have it delivered. Customer choice, anyone?