CMO of PULSE, the robotics and technology company. Recognized Thought Leader in strategy, retail, e-commerce and micro-fulfillment.
In an effort to more cost-effectively fulfill online grocery orders for its customers, Amazon has opened a “dark store,” which is more of a warehouse than a store. Located in Brooklyn, New York, Amazon’s dark store will be a good test of the concept to determine how big of a role the stores will play as the company accelerates investment in the grocery ecosystem.
Amazon is confronted with many of the same challenges as its grocery competitors, like Walmart, Kroger, Albertsons and Ahold Delhaize. Among the challenges is how to meet the increasing demand for online grocery ordering and delivery.
On the surface, fulfilling online grocery orders appears to be a fairly simple and straightforward process. It’s not. Consumers purchase a wide variety of products, resulting in a mixture of small, medium and large orders, ranging from a few products to 50 or more items.
Prior to Covid-19, 4.3% of grocery sales were online. Online grocery sales currently account for 10.2% of all grocery sales. The increased volume of orders, when combined with the large variance of products that need to be picked to fulfill each individual order, has significantly increased costs and complexity.
The Costs And Complexity Challenges
Unlike other industries where economies of scale decrease the cost per unit with increasing scale (volume of orders), the cost to fulfill online orders remains constant when using a store’s staff or third-party labor to fulfill an order. Based on my own research, and research from consulting firms that specialize in analyzing the grocery industry, the cost to pick, prepare and deliver an online grocery order is between $10 and $25, with most deliveries averaging $11 to $12.
If a grocery retailer