A better supply chain serves us all. Let's eat.

How Will New Grocery Distribution Options Disrupt Growers and Retailers?

Posted by IFCO Systems
August 04, 2016

While still only a small percentage of the trillion dollar grocery industry, the rapidly growing grocery E-commerce sector continues to be a key disruptor for all supply chain stakeholders as new entrants become rooted, and established retailers and growers weigh how best to respond.

We recently mentioned Walmart’s interest in partnering with Uber for home delivery, in addition to its “Click and Collect” (order online and pick-up at store) model. Here are some of the other distribution channels of interest, and some thoughts about how they are disrupting the industry.

AmazonFresh

AmazonFresh continues to a disrupter not only to bricks and mortar retailers, but to other online providers as well in terms of vast product offerings, fulfillment execution and speed. It promises same day and early morning home delivery to Amazon members.  Since its launch in 2007, it has expanded to a number of U.S. cities, and now to London, as it begins its UK expansion. Next year, there is anticipation that Amazon Fresh will be available in Australia.

Kroger ClickList

ClickList is Kroger’s new, rapidly expanding “Click and Collect” offering. Customers can shop online from more than 40,000 items, including a complete range of fresh and frozen products, before selecting a convenient time slot and location for pickup.

Blue Apron

Blue Apron is aptly named for the garb worn by apprenticing chefs in France. That symbol embodies the spirit of the rapidly growing national provider of gourmet meal kits for busy households, especially those with limited cooking expertise. Blue Apron eliminates the need to go shopping, the time to track down specific recipe items, and the risk of forgetting one or two. It provides labeled meal ingredients for three meals (either for two or four people), along with helpful instructions. Several companies offer similar services, including Plated, HelloFresh and others. Boxed meal kit providers, like other E-commerce offerings, will divert retail sales, but will also impact ready-to-eat meal alternatives such as restaurant takeout.

Here are some other thoughts on how grocery E-commerce is disrupting the industry:

At retail

Grocery retailers face the dilemma of tapping in to the capital needed to invest in E-commerce infrastructure versus the likelihood of eroding sales if they do not respond as this channel grows. One of the more cost-effective and least disruptive approaches is Click and Collect. Such a strategy can help maintain store sales, and can help boost local employment as retailers hire extra staff to pick orders. Not every retail outlet is suited for such a venture however. Click and Collect requires adequate traffic flow and parking for arriving online shoppers, in addition to frozen and chilled storage for completed orders to be staged until pickup.

At the Retail Distribution Center

In the early stages of grocery Click and Collect, the impact for distribution centers should be minimal. Product is shipped to retail as normal, and customer orders are picked by professional shoppers at the store. Order picking at the retail store is not particularly efficient, however, involving considerable travel time for shoppers. As volumes grow, retailers will be looking to improve order picking efficiency. And if retailers go after the meal ingredient kit market, that would require further changes at the distribution center. Where E-commerce is more mature in markets such as the UK, automated warehouses have been increasingly deployed to meet the needs of grocery E-commerce. Islands of automation are becoming increasingly popular in existing DCs as an option to investing in new automated facilities.

For Growers

New channels and relationships are providing new partnership opportunities for some growers, albeit with the potentially greater risk of dealing with new entrants. Working with premium services and bypassing retail markup may increase margins for them. Providers such as Blue Apron showcase their relationship with specific growers on their website. Some of the E-commerce services emphasize sourcing from local farms, and as such, may provide new markets for those growers, or in the case of AmazonFresh, sourcing from local markets.

As E-commerce continues to blossom, the goalposts are shifting in terms of speed, home delivery, cooking experience and other variables as competitors vie to win the hearts and wallets of customers. As always, the challenge will be how to profitably deliver the best in customer experience.

Reusable Packaging is Critical to Automation