Shopping for groceries online has taken off in the pandemic as consumers limit their trips to stores. Online food and beverage sales jumped 83% to $39 billion during the year ending on January 31, compared with the same period the year prior, according to the most recent data from Nielsen.
In the race to grab a larger share of customers’ online orders, grocers currently are planning two different approaches to get you your food on time. One, like Kroger, is to open large standalone warehouses that can fulfill thousands of orders a day and cover customers’ orders in multiple markets.
Kroger’s warehouses can fulfill more orders in a day than smaller micro-fulfillment centers — an advantage as online demand grows.
But in-store micro-fulfillment centers are better tailored to meet same-day delivery demand than large-scale warehouses, said Kelly Bania, an analyst at BMO Capital Markets. This is because large fulfillment centers are typically located further away from customers’ homes than stores.
“This is primarily a next-day service,” she said. “The US has really evolved into such a same-day market.”
Kroger’s approach could also hurt its profit since bigger warehouses are more expensive to build, she said.
On Wednesday, Ocado CEO Tim Steiner said the warehouses have the capability to fulfill same-day delivery orders. Kroger also offers same-day delivery from stores through a partnership with Instacart.
Kroger CEO Rodney McMullen said Wednesday that Kroger expects its profitability from these warehouses to be comparable to delivering orders from stores.
McMullen added that Kroger is not locked into its large-scale warehouse approach and may build smaller facilities in the future.