Dive Brief:
- Hy-Vee plans to build three more online fulfillment centers — in Kansas City, Omaha and the Twin Cities, according to the Des Moines Register. The move will delay the construction of a distribution center in Austin, Minnesota.
- The company currently operates an online fulfillment center in Urbandale, Iowa, where workers pick and pack grocery orders placed through Hy-Vee's Aisles Online system. Most locations throughout the retailer’s chain rely on in-store employees to prepare orders.
- Hy-Vee told the Register that the additional fulfillment centers will support the growth of its Aisles Online program. The company is also planning to build more of its Fast & Fresh small format stores.
Dive Insight:
Hy-Vee has gained a reputation for experimentation and for aggressively pursuing openings in the marketplace. Over the years, the Des Moines-based retailer has become a successful restaurateur, a health destination and a convenience store operator, among other things. It’s building stores that have gyms inside of them, as well new convenience-grocery hybrid locations.
Started in 2015, Aisles Online is Hy-Vee’s online ordering and delivery service. At launch, the service played up the use of Hy-Vee’s so-called “personal shoppers,” who would fulfill every order in-store. The idea deftly connected the online and in-store experiences and reassured skeptical customers that someone would carefully select and prepare their orders at the same place they were used to shopping.
As the business has grown, though, Hy-Vee has had to examine the viability of continuing to fulfill orders in stores. As many observers have pointed out, having workers pick and pack online orders in stores can crowd the aisles and strain inventory. Plus, stores aren’t laid out for efficient e-commerce fulfillment — a potential liability in an online grocery channel that’s seeing more demand for one- and two-hour delivery.
In order to fill a high volume of orders quickly, retailers like Hy-Vee are moving at least some of their fulfillment operations to dedicated facilities, where products and systems are optimized to get orders ready and out the door. With these three new facilities, Hy-Vee is focusing on metropolitan markets that see lots of orders each day. In the Twin Cities, the company is gobbling up market share, and a new fulfillment center will help Hy-Vee compete with weaker competitors like Cub Foods.
Cavernous warehouses aren’t the only facilities that can meet e-commerce demand. In England, where online shopping has significantly more market share than it does in the U.S., grocers frequently convert stores into mini fulfillment centers, or “dark stores.” This more localized approach hasn’t been utilized much in America, but it could help retailers become more responsive to individual markets.
Building online fulfillment centers isn’t an easy decision for retailers. They’re an expensive addition to a business where profits have so far proven elusive. But retailers like Hy-Vee have seen demand for online grocery shopping steadily grow, and are moving aggressively to establish themselves as market leaders in the space.
