Retailers Rushing to Automate Operations

American retail giant Kroger has recently opened a 375,000-square-foot facility, 30 miles north of their headquarters in Cincinnati, Ohio. Intending to enhance order picking and pack operations for grocery fulfillment, Kroger has staffed this facility with 1,000 grocery picking robots. Kroger also plans to open a facility similar in size and technologies just outside Orlando, Florida, and both these facilities are estimated to cost US$55 million apiece. These futuristic facilities have come in light of Kroger’s partnership with Ocado, UK-based e-commerce and fulfillment automation specialists.

Beyond the advanced technological solutions that are put in place, these facilities are intricately planned with optimized workflow to ensure the 1,000 robots are installed in the most effective way possible. The robots are strategically deployed across traverse 3D grids named “The Hive” and are supervised by proprietary air-traffic control systems in the unlicensed spectrum, according to Kroger. Closer to delivery time, the robots retrieve orders from The Hive and bring them to picking stations where items are sorted before delivery.

Kroger stated that algorithms are put in place to determine where items are positioned in the grid, with frequently ordered items at the top and rarely purchased items a level below. The packing is then automated to ensure fragile items are placed on top and bags are evenly weighted. Each order is adjusted to use fewer bags, reducing plastic usage. The Ocado partnership has enabled Kroger to operate 400 temperature-controlled delivery trucks that can each hold 20 orders. On the planning end, machine learning algorithms are leveraged to consider aspects like road conditions and fuel efficiency to dynamically adjust delivery directions in real-time and cover a delivery radius of up to 90 miles. Both the facilities will employ around 400 people in customer service, engineering, operations, inventory and quality management, and transportation roles.

With tech giants like Amazon setting the industry benchmark for unmatched delivery time commitments, traditional retailers are now rushing to automate their supply chain process. Bot-assisted automated fulfillment has been the highlight also due to surging e-commerce sales due to the pandemic and customers opting for options beyond in-person sales. Kroger Chairman and CEO Rodney McMullen stated that Kroger’s digital business has scaled to over US$10 billion, achieving a record digital sales increase of 116%.

However, market analysts have predicted that sales in the US$1.4 trillion grocery sector will decline in 2021 for the first time in over 20 years. Kroger is set to be in the middle of the grocery sector struggle as its shares fell by over 5% during investor day with ambiguities surrounding the pay-back period on these Ocado investments. Kroger has already been losing market share to Target, Aldi, and upscale regional chains.

Another area of concern for Kroger is competitors like Walmart opting for cheaper options, like smaller robot-run facilities attached to existing locations.  These “micro-fulfillment” centers can fit comfortably in the back of a store or nearby in urban areas where demand tends to be highest. They’re more cost-effective, quicker to construct, and are located closer to customers’ homes, which enables a shorter last-mile delivery and replaces human order pickers altogether. Walmart currently engages 170,000 of its workers just to pick and pack online orders. It plans to build 100 micro-fulfillment centers, with more retailers like Albertsons and H Mart following suit.

Companies determining between large robotic facilities or small-scale fulfillment centers seems to be a matter of judgment call. Undoubtedly a lot of factors like upfront capital expenditure, workforce availability, last-mile complications, and prospective customer acquisition come into play when deciding between the two. The profitability and efficacy of the route Kroger has taken in comparison to its counterparts who have opted for micro-fulfillment remains to be seen.