Former Commercial Director of Micro-Fulfillment at Dematic
Matt has over 10 years experience in the grocery business and is the Former Commercial Director of Micro-Fulfillment at Dematic, one of the leading material handling systems and services suppliers globally. He was responsible for bringing the micro-fulfillment solution, which is an automated warehouse solution within the grocery store, to the largest grocers across the US. Matt is now Director of Global Sales at stor.ai, a white-label solution for grocers moving direct-to-consumer. Read moreView Profile Page
Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.
Matt, can you start with a short introduction to your background, please?
I’ve spent the best part of the past 10 years working in and around all things grocery, primarily with a focus on supply chain warehouse distribution management, both within operations for grocers, as well as on the technology provider side, selling technologies into grocers to help enhance their online and in-store operations.
What exactly was your role at Dematic?
I spent a few years at Dematic and saw a good part of their organization but most relevant to what is going on in the grocery retail space today, I was the global commercial lead for the micro-fulfilment center solution. I was largely responsible for rolling that out that commercial strategy to the market and really understanding what components needed to be included in an MFC solution, for grocers globally, and then really working with our sales organization, to drive some of our initial customers.
How would you split Dematic’s MFC customer base between larger grocers, smaller grocers, regional, national and so on?
Generally speaking, it’s focused on the largest grocers right now; the 200 store chains and above. In the US, that’s the regional grocers, up to your tier 1 grocers. In the UK and Europe, you’re talking about the Tescos, Asdas and the Sainsbury’s of the world, so definitely on the larger side of grocers.
Can you describe how a typical MFC works. Firstly, where is it located in the store and its size, etc.?
I think a lot of this is still being figured out, within the market, both by grocers and the technology providers. My viewpoint, based on the time I’ve spent evaluating the market, is that MFC technology is something that can be deployed hyper-locally which, I think, really gets to the upper-level supply chain strategy that grocers are trying to figure out. You have hyper local, decentralized fulfilment and you have centralized fulfilment. Depending on which one of those upper-level supply chain strategies you go after, that will drive you to more of an MFC or a CFC solution.
On the MFC side, I really view that as being a decentralized solution thus, typically, near a grocer or in the backroom of a grocery store, if you are talking larger stores in the US or hypermarkets in Europe and the UK. Generally speaking, retailers deploying an MFC strategy are looking to make use of their existing store, working more of their footprint, and are looking to repurpose that footprint if they can or maybe add on to it in an adjacent section, taking over some of the parking lot. That’s really where I see the MFC solutions being deployed the most.
So there is a huge preference to leveraging that store base rather than building another smaller – say 10,000 to 15,000 square feet – facility?
Of course there is. When you think of the years or decades that many grocers and retailers have spent building out these brick-and-mortar stores, real estate is their largest asset. They strategically deployed them, years ago, to be close to their customer base at that time. Again, when you start thinking through that decentralized fulfilment strategy, getting automation closer to those end consumers is of importance to them. When you layer on top the fact that repurposing an existing footprint versus having to, potentially, acquire and then completely rebuild new and outfitting of space, it certainly also has capital dollar requirements that are less.
Can we walk through how a delivery works from an MFC? Let’s say that the customer lands on grocer.com, firstly, what is the inventory or the range that they see? Is it strictly from that store where the MFC is based?
Grocers are exploring different approaches to this strategy. To a large degree, they are still trying to figure out the unit economics behind MFCs. Generally speaking, what I’m seeing is that most grocers want to deliver the experience to their customers that they are used to so, typically, it is a full assortment. The customer goes to grocer.com, they pick all their items, they submit their order and then that order gets passed to the MFC and let’s just say, in this case, it’s in the backroom of a grocery store. It might get split; let’s be honest, no MFC and no automation is picking 100% of every order. It is just not practical yet, for a variety of reasons. A portion of that order, from that customer, is going to be picked by automation; a portion is likely to still be picked from the in-store, if it’s attached to a store. There are many players playing around with this concept of fast-pick zone, which is a manual area that is located adjacent to the automation. It’s not on the store floor; it’s not accessible by the customer shopping, but it is for those faster moving items.
The customer places the order; it gets split into those three zones. It gets picked in those respective zones, it gets brought back together and is then staged for the customer. If it’s being picked up in that store, great. If it’s being delivered to home, it then goes through that final mile process. Some retailers are even exploring shuttling it from one store to another store, for curbside pickup, which I think gets to the heart of that decentralized fulfilment model. They have started thinking about how one automation MFC hub can support multiple spoke stores coming off it and, thus, you shuttle those orders to another store for pickup at that alternate location.
How do they offer the full assortment if they are only picking from the store?
When I say full assortment, it’s going to be full assortment that is available at that store. Typically, most grocers have curated assortments and when most customers go to shop online, they select the store that is closest to them or they select the store that they are used to shopping at if they were to go in person. When I say full assortment, that means whatever is available at that store that the customer is used to being able to shop at. When you start getting beyond that, you start getting into the endless aisle space and that is a completely different conversation. I think the confines of where most grocers are at today, with deploying MFCs, it is about, let’s make sure that if a customer comes to this store, online, or if they come to this store in person, they are able to get the exact same product lines available to them.
There is obviously difficulty in making sure the inventory or the assortment is updated automatically online and in store, to make sure you can manage that expectation?
Yes, it’s a huge issue for grocers. It always has been. Physical inventory has always been the Achille’s heel for most grocers to deal with, just due to the simple dynamics of getting product into the store and then getting it to the shelf. At any given time, you have hundreds, if not thousands, of people shopping in your store so inventory has been allocated, technically, to a customer and it is sitting in their cart, but until it crosses the point of sale, you don’t actually recognize that as not available. Automation starts to help with that because, in these MFCs, they are being stood up as separate stores so they are on their own separate replenishment schedule. At least coming out of automation, grocers have a lot better predictability; they have a much better understanding of forecasting volume into it and forecasting volume out of it. You have really good inventory accuracy when you’re in it, because your best providers out there doing an MFC – the Dematics, the Takeoffs and the other large players – maintain perpetual inventory within the system so they are feeding that information back and forth.
From that standpoint, there is a lot of visibility but, as I mentioned earlier, let’s just say that, in best case, you are getting 80% of an order fulfilled by automation and maybe 85% to 90% down the road, that still leaves that 10% to 15% where you’re looking at having to fulfil that from the store floor. Therefore, you are having to revert back to the age-old problem that grocers have which is that in-store inventory can be at any stage within the store.
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