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6 stages grocers can follow to level up in online fulfillment

As the pressure to make online orders profitable grows, companies need to determine where their e-commerce operations fall along a maturity curve that progresses from stores to dedicated facilities.
Adeline Kon/Grocery Dive

As online grocery orders have risen over the past year, so has the need for retailers to lower their fulfillment costs and increase speed. For many, simply sending workers through their aisles with carts and product lists isn’t going to cut it in the coming years.

The industry has seen some recent examples of grocers leveling up their online fulfillment operations. Whole Foods opened a dark store in Brooklyn last year while United Supermarkets recently talked up the benefits of applying automation to store-level picking — noting the move more than doubled its picking speed. And of course, there are the numerous chains piloting automated micro-fulfillment systems that pick fast-moving goods.

But how do retailers determine the right fulfillment options for their markets? With online sales set to rise to as much as $250 billion within five years, grocers are realizing they have to make order fulfillment profitable.

Jordan Berke, who helped build Walmart’s e-commerce operations in China, one of the world’s most digitally advanced markets, has extensive experience scaling up online grocery fulfillment. He said retailers don’t need to jump into automated dark stores right away, but they do need to determine the right step for their local markets.

Berke, who now leads Tomorrow Retail Consulting, laid out six stages in a fulfillment maturity curve that progresses sequentially from stores to dedicated facilities, as well as the picking benchmarks retailers can expect to meet at each one.

In-store picking
Enhanced in-store picking
Manual picking from a dedicated in-store space
Dedicated in-store picking with automation
Dark stores
Automated dark stores

In-store picking

Optimal for less than 50 orders per day

The most common method of online fulfillment, often handled by contract workers, involves picking orders from store aisles just as a typical customer would. The advantage is a low cost for retailers but the disadvantage is inefficiency for higher volumes. This method is ideal for stores that receive around 50 orders per day or less, Berke said.

Enhanced in-store picking

Optimal for up to 150 orders per day

This method, which Berke recommends when a store goes above 50 orders per day, introduces automation to assist order picking in store aisles. A handheld device can be used to indicate the order in which workers should select items. Picking can be performed by workers assigned to various store zones, with orders assembled in the final stage.

Although in-aisle picking can use existing store layouts efficiently, it can create crowding that frustrates customers. Whole Foods, for one, has been criticized for being overrun with Amazon Prime shoppers.

Manual picking from a dedicated in-store space

Optimal for up to 250 orders per day

To maximize efficiency and minimize store disruption, retailers approaching around 150 orders per day should move fulfillment of their fastest-moving goods away from their aisles and into a dedicated space, Berke said. These miniature stores can go in backrooms or in an underutilized area of the retail floor. During the pandemic, Berke said many retailers converted shuttered foodservice space into e-commerce fulfillment sites. Others place them at the front of the store, sometimes removing cash registers to make room.

Grocers can wrap their “pick zones” with signage that promotes their e-commerce service, and should devote workers specifically to the section, Berke said. Ideally, retailers are able to pick 80% of each online order from the space.

Dedicated in-store picking with automation

Optimal for up to 500 orders per day

To fulfill more than 250 orders per day in each pick zone, grocers should add automation to their operations. This could mean implementing “semi” automation, Berke said, like wearable technology for workers that can guide their picking, or roving robots that can pick and store orders. It could also mean “full” automation like a micro-fulfillment system.

Dark stores

Optimal for up to 1,000 orders per day

Grocers should push fulfillment in their stores as far as possible, Berke said. But once they’ve maxed out, they should look to build a dark store that stocks popular goods and can take fulfillment pressure off their stores. Dark stores, like pick zones, can be laid out for maximum picking efficiency, and should initially rely on manual picking aided by handheld scanners and other technology to fill orders.

Berke said dark stores with manual picking can each comfortably handle 130 orders per day. This comes in addition to any orders fulfilled from store locations.

Automated dark stores

Optimal for more than 1,000 orders per day

Automated micro-fulfillment centers, which retailers like Albertsons and ShopRite are currently testing, can each help assemble upwards of 250 orders per day. Like a manual-pick dark store, they can be attached to a store or operated from a separate facility.

Micro-fulfillment systems, which rely on an assembly of storage shelves and picking robots that can fit in spaces as small as 5,000 square feet, are able to push out thousands of online orders per week. But they come at a hefty price tag of around $8 million to $10 million each, including site preparation, construction and software integration, said Marc Wulfraat, a supply chain expert who helps food retailers design fulfillment systems.

Correction: In a previous version, the optimal order ranges were misstated. They are per day, not per hour.