In-store picking: quantity or quality of stores?

In many countries online grocery is dominated by big offline grocers who do the picking in the stores. New (or older) upstarts (like Ocado, Mathem, Picnic, Oda…) are coming at the problem from a totally different angle, using warehouses for picking.

During the pandemic the retailers with store based picking generally were able to scale up online much more rapidly than the warehouse based players. This raises some questions with regards to the amount of stores.

How many stores should one have for picking online orders? Is quantity better than quality in this case?

Kesko is a great example of a retailer, which scaled up online very rapidly during the pandemic. They have also emphasised a lot how many stores they have serving online orders.

However, it is not about the quantity more about the quality. The store operations tend to become more efficient as the volumes go up. This is especially true for the deliveries, which require quite significant volumes to become efficient. On the other hand, compared to warehouses, stores are close to customers. This could enable much more efficient deliveries, when the sufficient volumes have been reached.

As the image above illustrates, some retailers have focused on getting smaller amount of stores with high volumes of online orders. One stores can handle significant amount of online orders, especially if Micro Fulfilment Center (MFC) Technology is utilised.

Sainsbury’s has only 245 stores fulfilling online orders, but still more than 2 billion € in revenues. This gives ig enough volumes for the individual stores to have efficient operations. Tesco has around the same amount of stores, but quite a lot bigger revenues online. This is why they have started to build MFC’s adjacent to some stores.

From Sainsbury’s numbers one can calculate that around 5-10 million euros (Sainsbury’s has on average 9 million € per store revenue in their online stores. It will be interesting to see when Sainsbury’s starts to transition their online operation from the shop floor to other solutions.