Grocery Product Managers Start To Think Small

Product managers start to bet on smaller grocery warehouses
Product managers start to bet on smaller grocery warehouses
Image Credit: BG Montifar

Grocery product managers are starting to face a real problem. More and more of their business is starting to be driven by customers going online and ordering food and then expecting it to show up at their door. What this means for these product managers is that the old way of doing business, building more grocery stores, is no longer going to work in the future. Product managers are going to have to change their product development definition and find ways to keep up with the changing times.

The Arrival Of Small Warehouses

So what’s the problem here? The problem is that grocery stores were slow to understand that their world was changing. They thought that their customers would always want to see and handle food products before making a buying decision. It turns out that they were wrong. Online grocery sales have arrived with a vengeance. Online grocery sales grew by 15% last year and growth like that would look good on anyone’s product manager resume. In order to meet the growing online ordering and home delivery demand, grocery stores are starting to build small warehouses in order to bulk up their ability to get groceries to customers quickly.

Grocery stores like Walmart and Albertsons are in the process of building small fulfillment centers near existing stores and customers so that they can quickly fill orders that customers have placed online. This strategy is different than the one that other grocery stores have selected where they create larger remote distribution centers. This is the strategy that has been adopted by both Peapod and Kroger. This type of warehouse can be used to make deliveries over a larger area. The reason that some grocery stores are choosing to create smaller warehouses is because they have a broader assortment of fresher items and because they believe that they are closer to their customers. These smaller warehouses take up roughly 10,000 square feet and they cost US$3M to build.

Small warehouses are sometimes called “microfufillment centers” and can range in size from 10,000 to 20,000 square feet. These warehouses have the ability to fulfill up to 4,000 grocery orders per week. It takes between three to six months to build one of these warehouses and it can become profitable in a year. The larger warehouses that some grocery chains are building can occupy as much as 300,000 sq ft and are able to fulfill up to 65,000 orders in a single week. It can take between two to three years to build these larger warehouses and it will take four years for them to reach profitability.

Not Everyone Is Sold On Small Warehouses

As clever as the idea of building a number of small warehouses to help better meet the demands of your online ordering customers may seem, not all grocery stores have bought into this idea. The idea of creating big fulfillment centers may be an idea whose time has already come and gone. Today’s grocery customers not only want to be able to place orders for their groceries online, but they also now expect their grocery order to show up at their homes in a few hours after the order has been placed. This poses problems for most grocery stores.

The smaller groceries have a real problem when it comes to meeting the needs of their online customers. They need to provide the same level of service as the larger grocery chains, but they don’t have the financial resources to build a number of small warehouses. What they have decided to do is to pair with food delivery services such as Instacart. These types of partnerships allow the smaller players to offer food delivery services from up to 90% of their stores without having to build any new warehouses.

The smaller grocery stores don’t believe that there is any economic benefit to having stand-along fulfillment centers. However, using a food delivery service such as Instacart comes with its own set of risks. Grocery stores who take this approach run the risk of losing touch with their customers. At the same time, these grocery stores are running the risk of alienating their existing in-store customers. What happens is that the food delivery staff come to the stores to pick out the foods that they need for a given customer and then all of a sudden the aisles become very crowded. However, this is a solution that seems to work for the grocery stores that don’t have the time, desire, or funding to build their own chain of fulfillment centers.

What All Of This Means For You

The world of grocery shopping is undergoing some significant changes. In the past shoppers wanted to see, smell, and hold the food that they were planning on buying. However, that has all changed. Now customers are willing to place their orders online, have someone else pick their food out for them, and then have it delivered as soon as possible to their home. Grocery store product managers are reviewing their product manager job description and scrambling to find ways to adjust to this new marketplace.

Online sales of grocery store products are increasing at a rapid rate. Many grocery stores are starting to build small warehouses to deal with this new demand. Walmart and Albertsons are building small warehouses so that they can be close to the customers that they serve. Other grocery stores are building much larger fulfillment centers that are further away from their customers. Both types of warehouses cost different amounts and take different amounts of time to become profitable. Grocery stores are facing another problem: customers are starting to want their online ordered groceries to be delivered to them quickly. What this means is that the grocery stores that are building large distribution centers may not be able to deliver groceries quick enough. The small warehouses may also take too long. In order to meet this need, some smaller grocery chains are partnering with firms that deliver food to customers. This allows them to avoid the cost of building new fulfillment centers.

The battle for grocery store customers has just become a great deal fiercer. With the arrival of online grocery ordering, all of sudden customers have many more options to choose from. Grocery stores are struggling to find ways to deal with their new reality – how to process online orders quickly and efficiently. The creation of many new smaller warehouses does provide a solution that is quick, close to the customer, and relatively inexpensive. This approach is going to have to be compared to the large distribution center and the custom shopping approaches. No matter which method wins out, the days of everyone going to the grocery store once a week seems to be over.

– Dr. Jim Anderson Blue Elephant Consulting –
Your Source For Real World Product Management Skills™

Question For You: Do you think that when a new grocery store is built that a small warehouse should be built at the same time?

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