What now for the MFC market?

THE GROCERY eCommerce fulfillment provider is seeking an agreement where a consortium of its customers will provide debtor-in-possession financing. This cash will allow the company to keep operating while it is marketed for sale.

The Chapter 11 comes at a time when micro fulfilment centres (MFCs) in general are struggling for traction after a pandemic induced boom.

Interact Analysis research analyst Rowan Stott succinctly summarises the appeal of MFCs: “MFCs were originally touted as a cost-effective solution for grocery fulfillment. Grocers spend significant amounts on store labour to fulfill online orders manually, and the use of an automated system in-store has the potential to significantly cut costs. For example, a human picker could pick ~150 items per hour, while an MFC could fulfill 600 items per hour. In theory, you could reduce labour costs by 75%, which, in many cases, could justify the upfront cost of the solution.”

So, other than changing market dynamics post pandemic, what went wrong?

Rowan continues that ROI wasn’t as attractive as many grocers originally thought.

“There were several productivity inhibitors that reduced overall fulfillment throughput – as well as many unexpected costs – which led to the solutions being more expensive than originally believed. This led many grocers to lose faith in solutions and sentiment towards automated MFCs hit rock-bottom in 2022 and 2023,” says Rowan.

“Productivity inhibitors included inefficiencies surrounding the replenishment process and a lack of coordination regarding the consolidation of manually picked items and items picked from the automated MFC, resulting in lower system-wide throughput rates. The unexpected costs included higher construction and planning costs, longer-than-expected install times, and, in some cases, the misplacement of inventory. The combined effect of productivity inhibitors and unexpected costs significantly reduced the ROI for the first-generation MFCs.

“For example, one grocer we spoke with installed an MFC with a pick-rate of 600 picks per hour. However, because the manual in-store pick rate was <100 picks per hour, and the consolidation of manual and automation picked items wasn’t optimised, the system-wide pick-rate (across both automation and manual systems) was just 250 picks per hour.”

Supply chain consultant Britain Ladd offered a stark analysis for TakeOff’s business failure.

“The brutal truth of the matter is that TakeOff is a poorly run company that failed to innovate, and they lack a coherent strategy. For example, TakeOff must sell and install at least three MFCs at a customer to be contribution margin positive. TakeOff struggles to convince customers to move beyond a pilot. When TakeOff does sell multiple systems, they fail to scale the operations efficiently resulting in higher costs and little to no profit.”

Ladd believes KNAPP - a key technology partner for TakeOff - will acquire TakeOff ‘at the right moment’.

The future - Tesco an example of evolving strategy

While prospects for the MFCs market have undoubtedly taken a hit, Interact Analysis predicts growth for the sector as grocers adapt their strategies.

Rowan says: “We anticipate more than 1,000 automated MFCs will be deployed during 2030, up from a peak of 58 in 2021.”

The research firm’s analysis in 2022 predicted that around 2,000 automated MFCs would be deployed in 2030.

Rowan explains: “The first iterations of MFCs were ~30k – 50k sq ft facilities bolted onto an existing store, which serviced both convenience and weekly-shop orders. However, we’re starting to see a bifurcation in the way grocers handle weekly-shop and convenience orders from a fulfillment standpoint.

“On the one hand, automated MFCs for weekly-shop orders are getting bigger. For example, H-E-B has shifted away from its smaller 50k sq ft facilities and is instead deploying larger 100k sq ft facilities that can service multiple stores.

“Tesco has launched a new grocery model called Whoosh. It is a limited assortment platform for online convenience orders, with items picked in its small-format stores located ~1 mile away from the customer. Tesco’s weekly-shop orders, on the other hand, are fulfilled in its larger superstores (many of which now include an automated MFC) with much larger delivery radiuses. By separating convenience and weekly-shop orders, Tesco has created two separate fulfilment models and the automation requirements for each model are very different.”