Rapid fire fulfilment for micro e-grocery

WITH TEN minute deliveries promised from a network of local ‘dark stores’, the only thing moving faster than the e-delivery bikes and mopeds are the companies entering the sector. Only last month, the emerging US giant Gopuff acquired the UK ultra-rapid fulfilment platform Dija, which in turn only launched in January 2021. When you add in Dija having time to acquire another competitor in that window as well, we see a clear demonstration of the intensity in the race to acquire customers and build networks to support this burgeoning market segment.

For those not familiar with Gorillas, Getir, Jiffy, Zapp and Weezy, they are the key players in this revolution. They may have ‘fun’ names but with market capitalisations in excess of $30bn they are serious disruptors to the grocery market. They offer rapid, 10-minute, micro-fulfilment of supermarket staple products delivered to your desk or door. There are 2 key fulfilment models; fulfilment from a retailer’s store or sent from small urban hubs servicing 1 or 2 postcodes each. Unsurprisingly the large incumbents aren’t standing by watching their lunch being delivered by these new start-ups. Tesco, Sainsbury’s and Ocado are all trialling their own solutions with their own partners. Other players such as Waitrose, Aldi, Coop and M&S are partnering with Deliveroo. The goal is to provide a wide range of groceries which are immediately available to customers on their smartphone and delivered in a faster time than it would take to go to the nearest convenience store.

Interestingly customers seem to be prepared to pay a premium for the convenience of ultra-fast deliveries. Most of the new disruptors require a typical minimum order sizes of £15 with a further £5 in delivery charges on top being the norm. Getir, who launched in the UK in January 2021, are already boasting in excess of 12,000 orders per day and have delivered over 1 million orders in their first 8 months since launching. They are already predicting 100 dark stores across 15 UK cities to support growth this year. New entrants have plenty of choice of potential operating locations, with securing proximity to customers being more important than the size and scale of facilities. Empty retail premises, light industrial units, and even railway arches, make perfect micro-fulfilment facilities.

With this trend emerging at the same time as the rapid growth in home delivery during the pandemic and associated lockdowns, the impacts for logistics operators are significant but can also present opportunities.

Whilst delivery methods evolve and final mile options diversify the keys to good retailing are as important as ever, particularly inventory forecasting and planning. Customers’ immediate needs can only be fulfilled if products are available to pick as soon as the order is received. Achieving this in a small dark-store location can be challenging for operators and most will need to operate a network of traditional RDCs to replenish the micro sites. However, due to access restrictions servicing small warehouses, it is likely that more frequent deliveries in small vehicles will be required, which will in turn increase the handling complexity in the RDC, with greater requirements for smaller case sizes and singles picking to balance availability and product life.

Initially there are likely to be two scenarios impacting on the logistics providers and solutions community, both providing risks and opportunities in the market. The fast-fulfilment sector is already in rapid growth. Their goal in the short term is to pick up more customers in established markets, add additional cities across the UK and, in many cases, to expand to other countries. This pattern can be seen with Getir who started in Istanbul moved to London, expanded to Amsterdam, and are now recruiting in New York. A similar situation was seen with Gopuff, who established in the US before entering the UK and Europe through acquisition. The reason these businesses have such significant capitalisations is the transferable nature of the operating model both in terms of technology, through their digital offer, and in the simplicity of establishing operations. For these reasons it is likely that they will move faster than existing logistics providers to develop tactical solutions which support growth.

One goal for new entrants, at this stage, is to attract as many customers as possible onto their platform in order to rapidly scale the business and attract further investment for expansion. Another is to facilitate growth through consolidation, with the acquisition of competitors. In this scenario a more traditional fulfilment solution will be required, with opportunities for wholesale operators and multi-temperature consolidation platforms to replenish RDCs or deliver direct to dark stores. Establishing an efficient transport network capable of regular replenishment is likely to be a challenge so this could provide an opportunity for food service providers with a national hub-and-spoke network. 

Looking at some of the established players in the market highlights the potential for logistics providers to evolve solutions to support new entrants. Tesco and Ocado, via their Urban Fulfilment Centres and Mini CFC concepts respectively, have developed automated solutions which are tailored to a smaller footprint. This progress should influence the innovation pipeline for the warehousing solutions industry to find an adaptable solution to support this rapidly growing sector. 

Opportunities exist for innovative material handling solutions in dark store operations but these must be modular and adaptable to cope with a flexible operating footprint. Mini hubs can be established in retail units of all sizes as well as other urban spaces, a one size fit all solution is unlikely to be scalable. To facilitate 10-minute fulfilment including delivery to the customer, rapid retrieval and order presentation will be key for keeping up with demand, especially at scale. This may present opportunities for solution providers to work towards true ‘lights out’ solutions which could be valuable in the longer term for reducing operating costs for providers. Developing and piloting these solutions whilst the new entrants are growing could provide a fruitful environment for testing and evolving solutions, as well as providing opportunities for longer term collaboration and partnerships. 

If used wisely there is some time for automated logistics solutions to be developed whilst the new entrants grow their customer base and start to balance their scorecard by elevating operational efficiency and profitability alongside revenue growth. The Amazon effect, conditioning consumers to expect rapid delivery at home, is likely to continue to grow, so these solutions will be required in many markets around the world and will also expand into more categories and sectors. 

Micro warehouses will never replace big sheds, in many ways they secure their role in the market as part of the ultimate hub-and-spoke network. It is likely that traditional retail outlets and dark stores will become interchangeable for multi-drop operators and that experience servicing ultra-urban locations will be valued. The key opportunity for the logistics industry is the industrialisation of the final mile and the opportunity for the years of innovation and learning in big sheds to be re-purposed to support the next generation of the end-to-end supply chain. 

Chris Moss, senior manager, BearingPoint

Chris will speak at HSS Live on October 6 on how logistics will keep up with customer demands for faster delivery. You can register for this virtual conference free - https://bit.ly/3BtlH1r

For more information, visit www.bearingpoint.com