Even before the pandemic, the grocery sector was one of the fastest growing warehouse automation segments driven by Amazon’s acquisition of WholeFoods in 2017 and the gradual shift towards e-grocery.
The Covid-19 pandemic had two major accelerating effects on the grocery warehouse automation market. Firstly, it highlighted many of the vulnerabilities in the existing logistics infrastructure. Secondly, it led to a huge increase in online grocery sales as consumers sheltered at home with fewer trips to brick-and-mortar stores.
CAGR of 28 percent for warehouse automation in grocery
Our research shows that the grocery sector will account for a major hike in warehouse automation annual revenues in the coming years, growing from US$2.7b billion in 2019 to $9.8 billion in 2025. Order intake from the sector grew by 17 percent in 2020, up to $4.2 billion, with the majority of the demand coming from store replenishment facilities, although we expect direct-to-consumer facilities will account for a growing share in the coming years.
In fact, we expect automation used for online order fulfillment to account for 40 percent of total grocery warehouse automation revenues in 2025, up from 14 percent in 2020. Among those investing in fulfillment automation are the rapid delivery companies – a new clutch of startups that offer delivery in as little as ten minutes.
Different company types = different automation needs
There are two principal grocery fulfillment automation modes. One operated by traditional brick-and-mortar grocers, and one utilized by the emerging rapid delivery sector. The type of automation solution a company goes for is largely dictated by the factors in the table below.
Brick-and-mortar grocers traditionally have a much larger SKU count than rapid delivery companies, and they deal with larger orders, which are fulfilled in anything from one hour up to two days, depending on the customers delivery window. This means that the potential for batching orders together is low. These companies tend to use wave, or discrete picking, where each order is assembled separately.
So the types of automation used will need to be able to engage in discrete picking, with direct access to every tote location. Furthermore, as orders are likely to be large, there will be very high throughput. We expect these grocers to use shuttle systems as their main storage and retrieval solutions, installed in a range of different picking environments, often in the back of their retail stores leveraging their existing real estate, or in large CFCs.
Rapid delivery grocers, on the other hand, such as GoPuff and Weezy, have a much lower SKU count and deal with small orders in a very short delivery window. They are able to use batch picking methods, as it is likely the same items will be in multiple orders, delivered at the same time.
As their popularity grows, these companies could develop networks of dark stores in urban environments, taking over under-used retail space. As a result, the types of automation used by rapid delivery companies will have three key requirements: 1) optimized for batch picking, 2) able to be installed in brownfield locations, and 3) modular in nature and scaled across a large number of sites.
Rapid delivery: an automation opportunity not to be missed
Warehouse automation companies should keep a close eye on developments in the rapid delivery sector, with a view to attracting significant business from it in the future. Venture capital has certainly recognized the potential of rapid delivery and has committed significant funding in the past six years, as reported by Crunchbase. See the chart below:
For the burgeoning rapid delivery market, automation may not be a top priority yet, as companies strive to expand their networks and gain market share. But we predict that if rapid delivery companies gain just 20 percent of total U.S. e-grocery market share by 2025, they would need to have more than 6,000 dark stores across the country.
This represents an untapped goldmine for automation vendors once these companies shift gears and focus on efficiency over expansion.
Interact Analysis’s Rueben Scriven is one of the warehouse automation industry’s leading analysts and is a regular speaker at leading industry events.