Retailers embrace micro-fulfillment centers

Food and drug retailers increasingly are exploring the opportunity to conduct e-commerce fulfillment from micro-fulfillment centers, rather than picking from their existing stores or shipping from full-sized warehouses.

These smaller distribution facilities, which in some cases are “dark” stores or locations that have been closed, can be stocked similarly to traditional supermarkets for picking by hand, or can be highly automated warehouses that can assemble delivery orders with minimal labor.

Scott Mushkin, senior analyst at New York-based Wolfe Research, said micro-fulfillment centers, or MFCs, could end up being “the holy grail” for some retailers when it comes to e-commerce fulfillment.

“The reason that is so powerful is you are changing the path of the product,” he said, noting that fulfillment from the store level requires too much movement of product from the warehouse to the back room, then to the store floor, then often back to the back room again before it is delivered to someone’s home or car.

“If you can change that pattern to where it goes from the DC to the back room to the trunk, it is going to be a lot better,” he said. “Micro-fulfillment should improve things quite a bit.”

The retailers exploring the opportunities of MFCs include:

  • Wakefern Food, the Keasbey, N.J.-based parent of the ShopRite chain, recently opened an automated MFC in Clifton, N.J., that is providing delivery and click-and-collect fulfillment for a 10-store region in New Jersey. The facility is a partnership between Wakefern Food and Waltham, Mass.-based Takeoff Technologies. Both companies said they have agreed to open additional MFCs in the future. Wakefern Food offers e-commerce for its own stores and those of its independent licensees through its ShopRite from Home service.

  • Stop & Shop, the Quincy, Mass.-based division of Ahold Delhaize, opened an MFC earlier this year in Hartford, Conn., and plans to open several additional facilities, the company said. The inaugural location also is a partnership with Takeoff Technologies, and will integrate with Ahold’s long-standing Peapod e-commerce grocery service. Takeoff Technologies also has partnered with other food retailers on fulfillment solutions, including Albertsons and Sedano’s Supermarkets, which billed its MFC as the country’s “first robotic supermarket” when it opened.

  • Walmart in July converted a 43,000-sq.-ft. former Dominick’s supermarket in Lincolnwood, Ill., to what the retailer is calling a Walmart Pickup Point, where customers who order online can collect their groceries. The store does not have a pharmacy, according to local reports. Groceries are selected by specially trained Walmart employees. It is similar to a small-scale fulfillment center the retailer has tested at its headquarters in Bentonville, Ark.

Bill Bishop, chief architect at consulting firm Brick Meets Click, said one of the challenges of using MFCs is that they end up competing against the operator’s other existing stores in the market, which means individual in-store sales volumes decline.

“That’s a tricky thing to navigate, and I do think it is a good idea in the short-term,” he said. “But I think the best solution is going to be automating the fulfillment of orders as a part of the store, so there will be just one source of inventory instead of two.”

Bishop said he believes a store that operates in such a way will open in the next year or two that “will be shopped very differently and will operate differently.”

“It’s not hypothetical,” he said. “It is coming.”