Retailers Look to Micro-Fulfillment Centers to Help Meet Ecommerce Demand

Long Term Shifts

Consumer habits and supply chain norms will likely be permanently impacted by the COVID-19 pandemic. Retailers rushed to respond to these shifts. Now, companies are looking ahead and thinking about how to make large-scale changes to their businesses in order to streamline their ecommerce operations for the long term.

Grocery stores in particular saw demand for online services surge during the pandemic. Many of these companies are now looking at a new type of warehouse as an important component of their business models in the future: a micro-fulfillment center.

The Logistics and Advantages of Micro-Fulfillment Centers

Micro-fulfillment centers are automated warehouses which operate with the help of software solutions and robots. They are much smaller than traditional sprawling warehouses. For this reason, it is cheaper and easier to put micro-fulfillment centers in urban areas than it is to put traditional warehouses in cities. Some micro-fulfillment systems are so small that they can be tucked in the back of already existing brick-and-mortar stores.

An estimated two-thirds of the world’s population will live in cities by 2050. Currently, just over half the world’s population lives in an urban area. This means that the price of real estate in cities could rise over the long-term, and demand for fast, last-mile delivery in cities will also climb. Micro-fulfillment centers will be able to help companies navigate both these changes.

Micro-fulfillment centers also require less labor, which will give companies more resources to hire people to deliver products. Additionally, these centers speed up the process of filling an order. Some systems are able to process an average grocery order in under 15 minutes. Because they can be located close to consumers and processing orders takes less time, micro-fulfillment centers will be able to help more companies deliver products in a matter of hours rather than days.

Analysts Expect Booming Growth for the Micro-Fulfillment Industry

Large grocery chains like Albertsons (ACI) and Walmart (WMT) are in the process of testing several different micro-fulfillment center systems from various providers, including Takeoff Technologies Inc. FreshDirect LLC has partnered with robotics company Fabric to build centers. The Texas-based grocery chain H-E-B has teamed up with Swisslog Holding AG to build a number of micro-fulfillment systems. On the non-grocery side of the retail industry, Nordstrom (JWN) is leading the way in investing in micro-fulfillment technology.

Though most of these operations are in their early stages, it is expected that this technology will be a crucial part of the long term shift to more ecommerce. According to recent data, the market for grocery micro-fulfillment locations could be worth $1.2 billion in four years.

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