The Net effect

Store Equipment & Design, Jan, 2001 by David Litwak

Internet grocery shopping is switching to a store-fulfillment model, which may change the way we design stores.

The dot.com grocery wars may have left a lot of casualties on the virtual battlefields, but the idea of ordering groceries over the Internet is far from vanquished--it is probably just beginning.

In Phase II of the Internet vs. the supermarkets, the battle lines are shaping up to be much different from Phase I's dot.com-only retailers vs. supermarkets. The stores are going on-line in an attempt to keep their customers satisfied. So-called "clicks and bricks" retailers maybe the eventual winners of the race to get shoppers buying online.

One model by which many retailers are now trying to get an Internet grocery operation off the ground is to fulfill the orders from their own stores. As you are reading this Roundy's Inc., in Pewaukee, Wis., is beginning to offer online shopping through six of its Pick 'N Save stores in the Milwaukee area. According to the plan, shoppers will place their orders online, then drive to the nearest participating store where the waiting orders will be brought out to their cars. The Internet infrastructure used by Roundy's was developed by Connecticut-based IDS.

"I used to be skeptical of the pickup model but when you get more into click and mortar programs I think that the pickup model makes a lot of sense. You can start with pickup and then branch into delivery," says Kevin Coupe of Ideabeat.

Instead of building warehouses or distribution centers to run delivery trucks, some retailers have opted to use their store shelves and staff to fill orders that come to them over the Internet. In the U.K, Tesco is perhaps the grocery industry's most advanced e-retailer. In an average week Tesco.com fills roughly 60,000 Internet-generated orders. Despite the fact that Tesco delivers the orders to customers instead of having shoppers pick them up, Tesco has opted to fulfill the orders directly from local stores. One hundred selected Tesco stores are used to fulfill the Tesco.com orders. This has saved the company the expense of building a series of regional warehouses for the Internet grocery service.

"[Using stores to handle order fulfillment] makes a world of sense," says Richard Tarrant, CEO of MyWebGrocer.com, New York, N.Y., which offers retailers a program for putting their stores onto the Web and structuring their in-store fulfillment. "The on-line-only's have to build a warehouse -- stores already have them. Stores are conveniently located, they already have a customer base, and they already have brand recognition. People have a confidence level with the store they've been shopping at for years.

"You don't have the Internet infrastructure costs or the excessive marketing costs needed to build brand recognition. You do have the inventory and the labor. When we implement our program with a store they will actually receive and fulfill their first order without having spent a nickel."

MyWebGrocer.com provides retailers with the Internet infrastructure to get their store's merchandise online. Aside from the software, the company also gives operators in-store processes for picking, packing, staging and customer pickup or delivery depending on the retailer's desire and ability. They also provide training for the retailer's staff. Instead of up front costs, retailers pay a flat fee per transaction.

"They start out with two or three orders a day and they have down labor that can pick those orders," Tarrant says. "We tell retailers, 'Spend your capital in your stores where the online volume dictates that it is a good investment.' Those expenditures might be in temperature-controlled totes so that the staff can pick the orders earlier and stage them longer, or in hand-held scanners when the volume warrants it. Walt until you have the volume, then spend the money."

Tarrant even advocates that retailers don't add extra staff to pick the orders or provide customer service until they have enough orders to justify the expenditures. MyWebGrocer.com currently has agreements with about 35 retailers ranging from single-store independents to regional chains of 30-40 stores. Currently, around 15 of those retailers are online with their programs.

IMPACT ON STORES

If a store is picking and storing two or three Internet orders a day there will be little strain on its operations. If, however, the store starts picking 30 or 40 orders a day, things will start to become a little tight in the backroom, the cooler and at the front end. Even if you're from the "We should only have such a problem!" school of store planning, a great deal of consideration needs to be given to designing stores to optimize Internet-generated sales.

"The equipment and design angle is critical to the operational fulfillment of these orders," says Nathan Otto, president of Point of Choice, Fairfield, Iowa, which helps retailers develop their on-line capabilities. "A big problem is the transition from the Internet to the store. You have to communicate the order, accept payment either online or in the store in a manner that doesn't take much time and verify the order back to your system so it can e-mail a confirmation back to the shopper. You might see new equipment designed just to do these things. The checkout is the biggest hassle--if you can bypass the checkout you're way ahead."