Will Walmart gain an unrivaled edge by automating its local grocery fulfillment?

Discussion
Photo: Walmart
Jan 27, 2021
George Anderson

Walmart knows that its stores work. The chain, which has increasingly emphasized local fulfillment is, in its characteristic manner, continually searching for ways to do the work more efficiently in order to keep prices down and grow its market share. That’s where local fulfillment centers (LFCS) come in.

Tom Ward, SVP of customer product, Walmart U.S., writes on the company’s blog that LFCs are “compact modular” warehouses that are built within or as an addition to the chain’s stores. The facilities can store thousands of products, from groceries to categories like consumer electronics.

Walmart, which began testing LFCs at a store in Salem, NH, in 2019, is excited about the results it has achieved to date and is working with a number of partners to scale the concept across its business.

Unlike stores where associates walk aisles to retrieve items, LFCs are manned by automated bots that pick orders and bring them to stations where associates assemble them.

Walmart is not leaving everything, however, up to the bots.

“We’ve always said personal shoppers are the secret to our pickup and delivery success, and that remains true. So, while the system retrieves the order for assembly, a personal shopper handpicks fresh items like produce, meat and seafood, and large general merchandise from the sales floor,” wrote Mr. Ward.

Mr. Ward wrote that the retailer has seen concrete benefits from its tests to date, including greater efficiency. One LFC has been able to fulfill orders for multiple stores in an area. LFC operations also are able to pick orders more quickly, which creates more availability for customers, and speeds up delivery and pickup to within an hour.

Walmart is planning to add automated pickup points at some stores where customers can drive up, scan a code at a kiosk, grab their orders and quickly get back on the road.

The retailing giant is not alone in pursuing LFCs, otherwise known as micro-fulfillment centers. Albertsons, Delhaize Ahold and Meijer are among major chains testing similar operations.

Kroger is also developing automated fulfillment centers but on a larger scale, spreading the warehouses across the U.S. The supermarket chain operator is looking to open up to 20 such facilities in partnership with Ocado, the British e-grocery company.

DISCUSSION QUESTIONS: Do you see Walmart’s ability to scale local fulfillment centers as a competitive game changer for the U.S. grocery market? Will LFCs or micro-fulfillment centers render large grocery warehouse operations obsolete?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Not many retailers have the critical mass or density to support a local LFC nor the space in-store to re-purpose."
"Walmart is nailing this with a brilliant (but also intuitive) blend of manpower and mechanics."
"The last mile is becoming old news — it’s now the last few blocks!"

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29 Comments on "Will Walmart gain an unrivaled edge by automating its local grocery fulfillment?"


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Mark Ryski
BrainTrust

Walmart’s logistical prowess is an advantage in the battle of the big leagues with Amazon and Target. As noted in the article, Walmart’s micro-fulfillment centers will play a complimentary role to the traditional in-store fulfillment services and further optimize their streamline delivery. And while LFCs have a place, they will not render large grocery warehouses obsolete – lots of people still like to buy food in person.

Jeff Weidauer
BrainTrust

For the first time in a century, the fundamentals of grocery shopping have changed. Micro-fulfillment is the most likely long-term solution for grocery to balance ecommerce and in-store shopping. As in-store traffic declines — which is the projection for the next several years — LFCs will expand to serve online shoppers. The change was already underway, but the pandemic has put this effort at the top of the priority list.

Neil Saunders
BrainTrust

Given that a lot of other players are looking at and trialling this technology, I would not say that this gives Walmart an unrivaled edge. However, given Walmart’s store network — which is extensive and includes a lot of more rural areas — this technology will provide a major advantage in allowing Walmart to ramp up online volumes with increased efficiency.

I don’t think that micro-fulfillment centers renders large warehouse operations obsolete. There is room for both, especially when trying to service areas where order density is high. However, there is no doubt that for lower volume areas micro-fulfillment is a sensible way forward.

David Naumann
BrainTrust

Micro-fulfillment centers or using stores as distribution centers are the best solutions to fulfill orders quickly (same-day or 2-hour delivery). In areas that don’t have enough demand to support a micro-fulfillment center, they will leverage local store inventory for fulfillment.

Dave Wendland
BrainTrust

As a HUGE fan of micro-fulfillment (done right!) and the need for speed, Walmart’s strategy is indeed a game changer for grocery delivery and puts every competitor back on their heels.

Will large warehouse operations become obsolete? I don’t think so. But they also must be retooled and engineered to be fit for purpose.

Michael La Kier
BrainTrust

The increase in e-commerce (BOPIS or Home Delivery) has resulted in more crowded stores with “pickers” getting in the way of “shoppers”… this will only continue to be a bigger problem as more shoppers return to physical stores. Walmart is shrewd to alleviate the conflict between “pickers” and “shoppers” and will look even smarter if they save money doing so. Maybe not today, but shoppers will return to stores and the better shopping experience wins.

Lee Peterson
BrainTrust

MFC’s are a game changer not only for grocery, but for retail in general. Most physical units will have to shift to a format of 1/2 experience and 1/2 fulfillment with some units going dark (MFC) to pick up and delivery only to save on cost and to get closer to the disappearing customer. Target is already down the road with the 1/2 MFC idea and has reduced shipping costs dramatically. Retailers would be naive to think that’s an accident. The store of the future is not only a store, it’s many things — or closed, pick one.

Mohamed Amer
BrainTrust

Local Fulfillment Centers are the result of technology advances converging with a changed supply chain mindset that optimize speed and resiliency while minimizing long-term logistics cost. The in-stock position goes up, the real-estate usage improves with more sales per square foot, better worker productivity, and you achieve higher same-store comps. This is never an either-or distribution model, but a synergistic integrated whole. Walmart executes better than the rest on that critical dimension.

Oliver Guy
BrainTrust

Arguably, Walmart have something Amazon don’t have — an extensive network of stores close to centers of population. It seems they are really focusing on using that in order to differentiate. Using dedicated distribution centers versus store fulfillment can be a trade-off between pick-cost against delivery speed/cost.

I would anticipate the answer is to have a combination of the two — getting the balance right will be key, but is not a straightforward calculation.

Gene Detroyer
BrainTrust

Walmart continues to focus on what they have focused on since Sam started. Their mantra is not being a retailer, but getting products, whatever they are, to the customer in the most efficient way.

The micro fulfillment centers are the perfect way to fulfill online orders. Keep online fulfillment out of the stores and handle them most efficiently. They certainly will not replace the large warehouses that supply stores and the micro fulfillment centers.

This levels the playing field in grocery fulfillment and may even put Walmart ahead of Amazon. Beyond that, no other retailer has the resources or mindset to compete in this way.

Ken Morris
BrainTrust

LFCs or micro-fulfillment centers (MFC) are the wave of the future. I am actively engaged is a MFC selection and believe the hybrid store concept is the way to go. With robotic picking for grocery and produce and meat shopped at the customer’s option. These centers pick super fast, they eliminate the clogged aisles that are filled with Instacart shoppers and allows the retailer to own the customer instead of Instacart or some other service. One of my co-workers who lives in New Hampshire ordered from Walmart during the pandemic and was receiving next day shipments when I couldn’t get a 14 day window with Instacart. People picking is a loss leader as it costs too much and it isn’t profitable, so why not make money on these orders by moving to an MFC?

Perry Kramer
BrainTrust

The use of “Local Fulfillment Centers” have been a hot topic for retailers for the last several years and the use of them will continue to expand. It is important to note that how each retailer defines what a local fulfillment center will be very different. Many will not be as grand as Walmart’s vision. These local centers are critical to enabling the balance of 1) delivering goods, with a quality experience, to the home of curbside in the one- and two-hour window consumers now expect, 2) remaining in stock on the store shelves, and 3) maintaining a reasonable margin on delivery and pick-up transactions. Walmart’s size, sheer number of locations, and R&D budget give them a strong leadership edge that others will learn from.

Gary Sankary
BrainTrust

Great move for Walmart. I do believe this is the future for grocery.

As curbside and delivery services continue to be important, one thing that retailers have learned is that stores have a difficult time supporting what are essentially warehouse functions. It’s been difficult to for them to scale these services. Pickers in the store create disruption for customers and make inventory planning difficult. Having dedicated facilities to support the services “off-stage” will bring efficiency to these processes and improve level of service, as the article points out.

I do not believe that these micro centers will make traditional warehouses obsolete. There is still a need to receive, process and support huge quantities of product, and all item specific requirements that go with grocery. These new micro-fulfillment centers really just another consumer facing outlet, like a store, that will require the same sorts of servicing to insure they have the inventory they need.

Richard J. George, Ph.D.
BrainTrust

The beauty of this system is twofold: 1. Creates potential cost savings/economies of scale, 2. Reduces store traffic created by in-store selectors. These local fulfillment centers have the capacity to optimize the grocery and fresh selection processes. The next step would to move some of the fresh components (space driven) to the LFCs with the goal of increased efficiency and further removing store employees from hand picking fresh items in-store.

Brandon Rael
BrainTrust

Walmart has a distinct advantage in the micro-fulfillment battles by leveraging the power of dedicated centers, automation, and digital technologies. While Amazon/Whole Foods, Kroger, and others have enhanced their BOPIS, curbside pickup, and same-day delivery operations, the grocery store aisles are far more congested than ever before, with personal shoppers competing with consumers for both space and products.

The concept of a dark store or a fulfillment center has emerged over the past few years and picked up steam during the Covid-19 pandemic. With the increasing costs of labor, the strain on store operations, and delays, the dedicated micro-fulfillment grocery centers powered by automation are on the rise in the race to mitigate the last mile.

Aside from all the additional revenue and profitability, these micro-fulfillment centers create immediate cost savings, especially when they achieve economies of scale.

Ben Ball
BrainTrust

Walmart is nailing this with a brilliant (but also intuitive) blend of manpower and mechanics. Local fulfillment centers are key to optimizing cost and customer service. Attaching them to a store, especially a big one like a Walmart supercenter, allows shared inventory without too much disruption to the sales floor. Look for an LFC coming near you soon!

Lisa Goller
BrainTrust

Yes, Walmart’s move is a game changer. For now. Using its bounty of stores helps Walmart protect its grocery leadership before Amazon inevitably expands in grocery.

Rivalry is fierce for grocery loyalty, as the category boosts basket size and order frequency. Amazon’s voracious appetite to win means it won’t be satisfied with just a nibble of grocery market share. Walmart has to use its strengths to stay competitive in omnichannel grocery and get closer to consumers’ homes.

Micro-fulfillment increases e-commerce efficiencies, which are core to Walmart’s low-cost leadership. It helps Walmart reach the young, urban consumers it desires and makes Walmart+ membership more enticing.

Warehouses will still remain vital, especially over the medium term. As consumer habits (and real estate trends) become clear, grocery retailers will find the balance between large warehouses and small, local footprints to maximize agility, speed and freshness.

Dr. Stephen Needel
BrainTrust

Love the cost efficiency. May or may not fix out-of-stock problems. Gives Walmart a temporary edge. Never believe anyone who says shoppers won’t go back to stores — already happening in the south and will happen everywhere post-pandemic. So if the financials depend on long-term growth in BOPIS or delivery, should be re-thought.

Karen Wong
BrainTrust

They are a competitive edge for Walmart which can’t be easily replicated. Not many retailers have the critical mass or density to support a local LFC nor the space in-store to re-purpose.

Andrew Blatherwick
BrainTrust

Once again Walmart shows its great understanding of the retail business. Yes, the LFCs are efficient, they make sense and will deliver even better availability and service to the consumer. But what is really outstanding is the Walmart has realized that you use automation where it works best and then use people to do what automation does not do well. Having personal shoppers to pick the produce, meat and fresh items really adds to the whole package and is so important for them to really gain a competitive advantage. It is this understanding of the consumer that is so inspiring. Congratulations Walmart, and I am one who never thought I would be saying that!

Christine Russo
BrainTrust

The last mile is becoming old news — it’s now the last few blocks! Delivery times are expected to be quicker (same day) or less (a few hours). The pandemic has opened up large spaces which are perfect for micro-fulfillment centers, particularly mobile ones like companies such as Nanofulfillment (that can be set up quickly and/or be relocated — as the data indicates — to the closest locations and/or the most densely located consumer locations). Being as close to your clients as possible is a must and data-driven retailers can really thread the needle.

Steve Montgomery
BrainTrust

In this case is it’s not all about the money, but logistics. One of the reasons Walmart purchased McLane several years ago was its logistics expertise. Walmart focuses on the cost side of the equation.

After it has secured the lowest cost of goods it can from its suppliers, it works on what it can do internally. Its ability to move items from where they are purchased to where they are sold is one of its strengths. The LFCS concept is one more way it is augmenting that strength. I don’t foresee them replacing larger warehouses as the LFCS will act as another step in their internal supply chain.

storewanderer
Guest
2 months 23 days ago

Walmart purchased McLane in 1990 and sold McLane in 2003.

Harley Feldman
BrainTrust

Walmart’s ability to scale LFCs will provide large dividends to delivering products to customers in record time, at a lower cost. The orders are handled quickly in a smaller “warehouse” right at the customer’s pickup location. Walmart also has an advantage with fresh food in the store where the LFC is located. Add to that the automation of pickup with codes, provides Walmart’s customers with the fastest and lowest cost delivery process. It is especially effective against Amazon that has very limited store ability (Whole Foods) to meet this Walmart capability.

LFCs will not render large grocery warehouse operations obsolete. Some customers will not drive to the LFCs for local pickup, plus there are many items that will not be stored in LFCs that will require the space in the large warehouses.

Jeff Sward
BrainTrust

What a great combination of humans, tech, and robotics. Efficiency and pragmatism driving evolution. It begs the question of Amazon and a bigger, broader brick & mortar foot print. When? How? Build or buy?

Shep Hyken
BrainTrust

Walmart continues to improve in all levels, especially in fulfillment and delivery. As they get better, it will matter to Walmart’s bottom line and not so much to their customers. It’s like flying to Hawaii. The customer wants to know they are in a nice hotel that has a beautiful beach. They don’t need to know the size of the engine of the plane that’s taking them there.