Micro-fulfillment has been a hot topic circulating throughout the logistics industry lately – and with good reason. 81% of consumers expect same-day delivery and two-thirds want to receive their package between 1 and 3 hours after placing an order. E-commerce natives, in particular, are driving this shifting landscape. In addition, increased demand for products that come with a higher urgency for faster delivery, such as online groceries, is pressuring retailers to devise new solutions to keep up. Micro-fulfillment centers (MFCs) have quickly become the answer.
The ever-changing urban landscape
Urban expansion and space constraints are pushing e-commerce companies to rethink their distribution strategies entirely. By 2050, 68% of the world’s population is expected to live in urban areas. So, moving distribution centers closer to demand centers is a no-brainer for increasing market competitiveness and satisfying customer demand.
But, e-tailers also need to consider developing real estate trends. With US industrial real estate vacancies at near historic lows in 2020, setting up MFCs in existing stores or adapting smaller urban spaces is a very attractive prospect, when possible. The shifting infrastructural landscape of European cities makes for new hotspots for potential MFCs with underground car parks quickly being snapped up and repurposed. Ultimately, these types of urban spaces allow retailers to create strategically dispersed distribution networks efficiently, in a fraction of the time. MCFs require just a few hundred square meters, and can be up and running within a couple of months.
Advances in automation
By 2023, micro-fulfillment centers are expected to exceed 20% of the total demand for US grocery warehouse automation in revenue terms (see chart). As faster distribution and fulfillment (D&F) operations become a requirement, human labor is increasingly becoming an added-value contribution as automated D&F assumes menial tasks to better serve future, incoming demand. Implementing automation is a top priority for retailers wanting to stay with the pace of customer demand and deal more efficiently with managing diverse inventories. Setting up MFCs gives them the scope to invest in advanced automation and supply chain tech, future-proofing their operations and making them more scalable.
The Covid-19 shift
Global lockdowns have sparked a consumer behavioural shift. This has prompted the number of customers shopping online to surge, often beyond existing capacity to service the spike in demand (a note to the upcoming Holiday season). This has piled even more pressure on retailers to meet the increasing demand for rapid delivery in order to stay competitive. In the US alone, 39 million households (31%) used an online grocery delivery or pickup during March 2020. Is this shift structural or circumstantial? Probably both with US shoppers now stating they are ‘very likely’ to continue using online grocery services even when the pandemic is over at a rate of 43%. While the number of in-store shoppers is likely to rise again when the crisis subsides, the Coronavirus outbreak has, indeed, fundamentally changed consumer shopping habits. MFCs are providing a viable and affordable solution for retailers to meet them.
Booming e-commerce markets
Even before the pandemic, e-commerce was experiencing continuous growth. In Europe alone, the sector is now expected to be worth 717 billion Euros by the end of 2020. Honing in on Germany, the e-commerce market is set for a staggering 10% growth this year. Considering the trend to shopping online (4 out of 5 internet users in Germany now do), it’s clear that optimizing e-commerce operations is crucial, irrespective of how the pandemic plays out.