What Amazon and Whole Foods wish they knew about in-store fulfillment

MINDS WERE BLOWN last week when Amazon.com announced its intention to acquire Whole Foods Markets 461 locations in a $13.7B cash buyout. A media and analyst frenzy followed that has kept the world of retail business on edge for many days.

As it happens, your intrepid storyteller was already deeply involved in a project focused on the in-store fulfillment of online orders. Click & Collect has been coming on strong for many months, and it seems like Amazon’s serial adventures with AmazonFresh Pickup, AmazonGo, Prime Now and Prime Pantry have been a primary catalyst. Obtaining a portfolio of physical stores is its most audacious experiment to date. Now the competition gets interesting.

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As of this writing, Walmart.com and Kroger each have hundreds of Click & Collect locations in operation, with announced plans to open hundreds more. H-E-B is offering its Curbside order pickup service in several dozen locations in Texas. Ahold USA’s Peapod continues to fulfill deliveries from its sister Stop & Shop and Giant Food stores. Safeway continues to offer online ordering and delivery in markets across the country. Fresh Direct has earned headlines for its online order and delivery service in the metro NY market. Wegmans is testing “concierge” delivery services in a handful of stores.

Publix, H-E-B, Wegmans, Whole Foods and dozens of other grocers in several dozen cities are working with the Instacart service to pick and grocery orders in stores and deliver them within hours. Giant Eagle, Albertsons, Harris-Teeter and many other medium and small supermarket operators have implemented online ordering solutions from MyWebGrocer.

In-store grocery order fulfillment is clearly not a fad. It’s an enduring new business method with profound implications for store-level operations – especially store-level inventory optimization. This is the world that Amazon is jumping into with its announced acquisition of Whole Foods. It’s a world where supermarket operators may still retain an edge.

For supermarkets, fulfilling orders from neighborhood stores with full assortments is a distinct competitive advantage versus online services that ship mostly packaged products from centralized distribution centers. This is most keenly realized with respect to perishable or prepared products, but the bulk and weight of some grocery items can make use of third-party delivery services impractical.

Amazon will have a lot to learn about the business of optimizing store-level inventories across a geographically diverse chain with assortments that vary by store. Whole Foods doesn’t seem to have much direct experience to offer in this crucial knowledge area. Order-filling in stores brings a range of implications for On-Shelf Availablity and replenishment. Chronic out-of-stocks lead to excessive item substitution rates, raising labor costs and hindering the quality of the shopper experience.

To truly deliver on shopper expectation, online grocery requires in-store inventory science. Right about now, I’m guessing Amazon wishes it knew a bit more about this crucial topic.

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