Increasing capacity of grocery eCommerce operations.

In the Prime Minsters press conference yesterday, he was asked what the government was doing to support online grocery retailers in distributing products, especially to isolated consumers. It is a good question! While Woolworths, Coles and other retailers are working tirelessly, twenty-four seven, they have at times had to limit or stop their online delivery operations over the past week.

I feel that online grocery retailers have a huge role to play in supporting the community in this crisis. I hope retailers, as best they can in the ever-changing circumstances, work together with government and other key stakeholders to ramp up capacity to offer to Australians a reliable online channel for supply. Here are some thoughts from me on this topic.

Australians buy around 3-4% of their groceries online (see table below, source: IGD 2018). The retail supply chain to support these eCommerce grocery operations is thus fairly limited, relative to store-based grocery shopping operations in Australia.

In a handful of other countries, the eCommerce grocery shopping channel is more established, with customers using online shopping for up to 14% of their grocery needs. Importantly, retailers operating in these nations have an already established supply chain capability to support such delivery activities at greater scale. How can Australia (or any nation for that matter) scale up eCommerce delivery operations in a hurry?

I suggest simplification is the key to urgent supply chain scale.

Range and operational efficiency:

• Retailers use a mix of store and/or warehouse facilities to pick online customer orders. Picking each customer order, from the available circa 40,000 SKUs in a store or warehouse is no quick or easy task. In fact, picking from stores over the past week would have been almost impossible given the amount of competing walk-in customer panic buying traffic in the store aisles. The time taken picking individual order items is a major barrier to scale.

• An option retailers could consider is limiting the offer to, or promoting SKUs that offer a step change improvement in operational efficiency. Pre-packed mixed fruit and vegetable boxes are an example of this. Consumers don’t choose what is inside the box. They choose a size of box based on their household size or needs. Retailers can pick, pack and distribute these in a highly efficient manner.

• There could also be an option to extend this concept across other categories, for example: dairy & meat, cereal/pasta/bread/rice, home essentials, baby essentials, dog essentials, etc. These boxes would each contain a mix of items within each category. Like fruit and vegetable boxes, they could come in various sizes. An extension could be to only allow customers to order from the range of pre-packed boxes. For example, if twenty or so pre-packed boxes where offered, covering most categories in the store range, consumers would only order be able to order from the selection of pre-packed boxes. Retailers would choose what goes in each category box from whatever stock they have available. They would ensure each box contained a good mix of products. This would allow a step change increase in capacity.

• If online grocery retailers chose to further focus on a basic needs and essentials offer, they could ultimately even limit their offer to a choice between a handful of purchase options. These would simply be a choice based on household size such as single, couple, family of four, family with baby, etc. The retailer would pack and deliver a ‘basket’ of goods with food and home essentials suitable for the household for a couple of weeks. These would be highly efficient to pick and deliver. Consumers would get what they need for a few weeks but will have no choice in what specific items they get.

• Yes, I know people have allergies and intolerances and some people have specific dietary requirements and needs. Additionally, many consumers might not wish to receive a bundle of items including some that they are unlikely to use (that will result in waste). The full range of store SKUs would still be made available online. What I am proposing is an option.

Operationally, the full online SKU service could be handled in a separate parallel stream. The full range of ambient products for example, could be picked and delivered via the postal/parcel network, keeping the main online operation to focus on efficiently handling and delivering pre-packed boxes at scale. Even if a fraction of customers shift to a pre-packed box option, this would help increase the overall capacity of the system.

Delivery:

• Most online grocery deliveries in Australia are made using chilled temperature vans. Delivery runs are planned daily to meet customer chosen and attended appointment slots. These slots often range from one to twelve hours.

• With consumers likely to now be home for the majority, if not all of the day, there is little reason to significantly constrain transport capacity by delivery slots. There is potential to simply deliver to daily (if not weekly) delivery slots, with extended delivery hours. This would result in a sizable increase in capacity for last mile delivery.

• For essential workers and healthcare professionals, retailers could offer a handful of delivery windows per day, for example, early morning, daytime, evening time and late evening.

• If chilled vehicle capacity is a constraint, ambient vehicles could be used to supplement the fleet. Streaming of ambient pre-packed boxes to non-temperature-controlled vehicles or Australia Post could be an option for delivery, leaving chilled vehicles to handle temperature-controlled boxes. Most consumers should be home. There is no real need for consolidated deliveries to households across all product temperature zones. Consumers need stable supply, not a convenient delivery slot for all items to arrive together.

Online Meal Kit Providers:

• Meal kit providers such as Hello Fresh and MarleySpoon, could have a significant part to play in supporting the community. Woolworths, with a direct investment in MarleySpoon is quite well placed to leverage this capability. Meal kit providers are better placed to expand their capacity quicker, compared to a full range online supermarket. This could either be done by scaling up volume of current operations, or facilitating the picking of pre-packed (non recipe) boxes discussed above.

• Another benefit of meal kit providers is that they ship items with ice packs inside the delivered boxes. While this contains waste, it could help facilitate the use of ambient vehicles to distribute products, leaving chilled vehicles for other tasks if necessary.

I am the first to realise that it is tricky to make changes quickly to any online ordering system or process. Especially with all the other priorities supermarkets are facing right now. But I believe simplification and getting a small number of bundles out to a large number of consumers is the good solution. This could allow the capacity of the system to increase by an order of magnitude. Finally, I want to mention that these are just some thoughts. Things are moving quickly each day and all retailers are doing everything they can to support consumers. These thoughts are simply meant to trigger or support discussion and potentially innovation. Hopefully we can see the capacity of online grocery deliveries increase substantially over the next month to support all.

George Panas is a PhD Candidate in the Department of Management at Monash University. His PhD explores how consumers consider convenience and waste in online grocery decisions. Prior to commencing his PhD, George held senior industry supply chain roles, including Head of Supply Chain at Coles Group Asia and Head of Finance for Coles Online.