The word out there is that the new e-Commerce battleground is online grocery. And the word is spreading. We see more and more grocers making the leap and offering online grocery with in-store order picking. In fact, Pick and Pack for Click and Collect, is one of the top e-commerce grocery trends around the world, and growing. But are grocers actually making money with the service?
At first, it appears simple. Grocers already have a plethora of products all defined, priced and seemingly ready to be integrated in a nice e-commerce website. Of course, online content and media, such as descriptions and pictures, still need to be defined. But in the end, they will open up that online channel in a reasonable amount of time, and customers will be happily placing orders.
The problem will be with order fulfillment. Orders will trickle down to stores where floor employees will run through aisles picking up items and assembling shopping carts for customers. And that takes time; a lot of time! Grocery employees are continuously intercepted by customers looking for products, asking for something in the back store, inquiring about a price, reporting a spill in aisle 14... Employees will be picking a long while, and withaverage orders in the 40-item range, it will easily take well over an hour.
How much will your customers pay for order assembly? Seven dollars? $10? Perhaps as much as $15 on weekends. Then again on weekends, floor employees will be solicited a lot more than during the week. The bottom line is that for most orders, money will be lost.
Consider the costs associated with ecommerce grocery order assembly:
• Coordinating orders with fellow pickers;
• Fulfilling the order by scanning and weighing items throughout the store;
• Dealing with missing products and selecting perfect substitutions;
• Having to confirm a choice with the customer via text or phone;
• Transferring the order to the POS system;
• Temporarily storing items in cases, refrigerators and freezers;
• Putting it all back together again and delivering to a car, or putting it on a truck taking it to the customer’s home.
That’s a lot of steps involving more than just one picker. And it can very easily cost more in resource and salary than the service fee charged to the consumer. A reliable and efficient order picking process is crucial for online grocery success (read our case study on pick-and-pack mobile application).
Grocers will argue they need to get to that market because the competition is there. And they will claim they are willing to make the early adopter profitability sacrifice. Now; that may be an excellent strategy, but not indefinitely, and certainly not with high volumes! Growing a market managed this way inevitably implies growing losses. There is no economy of scale with this deficient process. When money is lost on every order, more orders means more money lost. The solution for online grocery lies in order fulfillment optimization with Pick & Pack, reducing operational costs below service fees.
Order picking optimization comes in various flavors.
1) A good Pick & Pack application will order products according to an optimal route through the store. It should provide basic location information for items. An important proportion of products are associated to planogram contracts. Placement for those is precise and typically enforced. Instrumentation telling pickers that the 19 oz. can is located in the tomato sauce fixture, in section 3 on the 5th shelf is enormously useful. Kudos if pickers have a picture of the product on the device.
2) The measures mentioned above help, but aren’t enough. Going through the store one order at a time is unwise. That’s one of the deepest money pits. Wave picking is one great and relatively simple order picking solution. Pickers fulfill more than one order in a single wave through the store. The instrumentation could also help direct items to the correct order tote by requiring a tote scan or simply by acknowledging it. It greatly reduces mix-ups between the group of orders being picked simultaneously.
3) Sophistication can be taken to a third level by supporting order picking by zone. Specialized employees pick products for numerous orders in batch, but only for a single department such as meats and seafood, produce or other specialized departments. Then totes can be differentiated, instructing pickers to place items in a frozen, cold or dry tote. It doesn’t need to stop here and optimization can be further refined. It all depends on order volume and maturity of the process.
In the end, the brutal reality check is clear. In order to beprofitable with online grocery, one needs to focus serious efforts on planning last-mile order fulfillment logistics, provisioning good product and store data, and providing pickers with good instrumentation and optimization tools.