Micro-fulfilment centres coming of age

The odds on retailers utilising automated micro-fulfilment centres (MFCs) for groceries and also general merchandise (GM) categories have certainly shortened now that growing numbers of consumers have become accustomed to shopping online.  

Although Covid-19 boosted the levels of online sales to arguably justify an investigation into such solutions Steve Hornyak, chief commercial officer at automated MFC operator Fabric (formerly CommonSense Robotics), says there are still some obstacles to retailers adopting an on-demand fulfilment model incorporating automation.

“To justify the capital expenditure to do it they need to know they’ve got a higher volume of online orders. Covid-19 pushed the levels of grocery orders up but will it persist? In the US it was previously below 5% [of total grocery sales], it peaked at 20%, and it has now gone down to 12%. The question is, will it trickle back to 3%?” he asks.

He projects it will stick in the 10-12% range, which he suggests is the “new bottom”, and that it will climb to 20-25% over the next few years. This is a critical mass level that signals retailers need to go beyond using manual picking of orders from their stores, which Hornyak says is just “plugging the hole”.

For the big box operators a re-purposing of their physical units to include a MFC is a sensible option as it can boost the volumes of orders fulfilled from the space by 5 to 10-times the manual method. Against this backdrop Hornyak says there is MFC activity taking place with the majority of large global grocers that operate big box estates.

The optimum size of MFC is 10,000-30,000 sq ft although they can be as small as 5,000 sq ft but this can limit the capabilities for a SKU range that is typically 10,000-30,000 for an MFC. The products running through an automated MFC should be those in the mid-velocity range as both the long tail of infrequently bought goods and the very fastest sellers are best dealt with manually. On this basis Hornyak says around 80% of grocery items should ideally be automated whereas for GM it can be 100%.

He also suggests another obstacle to MFC adoption is down to the fact 2020 was due to have been a test and learn period for many retailers looking at such solutions but Covid-19 resulted in them pausing deployments.

One firm embracing MFCs is FreshDirect that initially used the automated solution of Fabric in the Washington DC area. Hornyak confirms Fabric is part of the strategic expansion of FreshDirect, and its new owner Ahold Delhaize, and that additional sites are planned.

Although the grocery sector has tended to grab the headlines with its activities around innovative MFC experimentation Hornyak says there is also “strategic heavy investment going into GM” with a big trend of outsourcing on-demand fulfilment. He can see networks of MFCs for GM in the future as the drive towards direct-to-consumer continues to hot up for many brand owners.

Glynn Davis, editor, Retail Insider