But the most disruptive change is grocery delivery. First it was impossible. Then Instacart happened. Now it's not just a 'must have' option but it could become the default method of grocery shopping, at least in urban america.
Within the realm of grocery delivery are curb-side pickup and home delivery. In many densely populated urban cities curb-side pickup is an impossible feature to offer. There simply is no space in many urban centers.
The winds are a changin
Malls are empty. Malls have a lot of parking space. Curb-side pick up even in dense urban cities for small footprint stores is going to be possible.
But this too has limitations. Driving distances to malls, the need to pick up groceries quickly and the sheer inability to keep up with the demand (replenishment of inventory, availability of shoppers for hire) etc. will be some kinks to work out.
With grocery, the additional challenge is the variance in volume and size of items in the basket across orders. That said, I wonder if distributed dark stores in dense blocks somewhat solve the problem of queuing of time slots.
But what will happen after the pandemic will be over? Will curbside pickup still continue to be in demand?
Curbside or full-fledged home delivery, the common problems are what make delivery prohibitively expensive for retailers.
Grocery has a gross margin problem
The real problem with grocery delivery is people. They can pick, pack and deliver only so fast. As more and more orders pile up they will become less and less effective - crowding, out of stock, fatigue etc. will lead to dis-economies of scale.
It costs about $20 per online order for delivering groceries. That just wipes any chance of profitability.
We have a perfect storm.
The world is getting used to grocery delivery but the grocery retailers are not ready for it. I don’t mean this as a jibe but the stores and warehouses aren’t built for eCommerce. The store workers aren’t warehouse workers. The in-store shoppers that are being hired in the 1000s aren’t really picking and packing experts.
Stores don’t have the stations and equipment to help them do their jobs better.
We are actually stitching the parachutes while descending into coniferous trees. Ouch!
My money is on dark stores that are designed for eCommerce. Actually dark stores is a limiting phrase here. I’d imagine more than repurposed stores. There have to be small footprint warehouses everywhere designed ground-up for robotic picking and packing.
Already, big box retailers are redesigning portions of their stores for in-store picking, packing and delivery. With vertical bins, elegant problem-solving when certain bins go out action, configurability etc. I am told that robotic fulfillment can save as much as 50%-70% of the overall delivery cost. With groceries though, there are issues related to uneven dimensions and variance in sizes. Some items aren't yet good for robotic picking and packing. But like it is the case with everything related to technology, these kinks will be ironed out.
Amazon's automation architecture vs. Instacart's demand prediction algorithms
While I am bullish on dark stores, I am also wondering whose dark stores will we get our groceries from - Amazon or others' powered by Instacart?
There are two problems to solve in grocery delivery:
Picking, packing and (this is unique to groceries) rejecting that gooey lettuce that smells like rotten egg - Everyone (who solves it) does it internally with the help of technology vendors like GreyOrange, Autostore etc. There are dozens, each so cool.
But, there is no 'automated grocery platform' as a service today. Instacart could get into it by acquiring a micro-fulfillment robotics company. Amazon already has the chops but no grocery chain in their right mind will adopt their tech and their dark stores.
So Amazon might just have to federate its warehouse automation tech (acquired from the likes of Kiva, Canvas etc.) to the dark stores it will lease from real estate players who have nothing better to do with them now. To me, this makes more sense than Amazon Go at the moment. But for now, Amazon seems to be tackling grocery delivery through a more traditional small format grocery store.
But what would be truly momentous and could not be ruled out is if Amazon launches a 'Prime equivalent' for restaurants and other food services businesses when the physical world opens up. Amazon's Achilles heel is not warehouse automation or delivery. It is the 'local scale' and 'perishability' that it needs to solve together.
Amazon knows how to embed itself into the technology architecture of other companies. In grocery, it has to integrate its picking, packing, delivery and quality assurance architecture to serve small businesses at scale across America. I don't know if Amazon will do this but the restaurant business can definitely benefit from the savings that comes from giving a large player the economies of scale.
The timing is right.
(Question: Should I do a podcast with guests? Will you listen regularly?)
PipeCandy is a market intelligence platform that tracks the global eCommerce & 'direct to consumer' landscape.
You are receiving this newsletter because you subscribed to newsletter or interacted with the PipeCandy website.