Digital-First Grocery: A Look Inside Micro Fulfillment at Albertsons

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Digital-First Grocery: Albertsons Betting on Micro Fulfillment

Digital-First Grocery: A Look Inside Micro Fulfillment at Albertsons

By Jim Dudlicek - 03/17/2020
Digital-First Grocery: A Look Inside Micro Fulfillment at Albertsons
Jewel Hunt, group VP of ecommerce for Albertsons in one of the company's micro fulfillment centers

For Albertsons, the future is as close as the back room.

“We can fill orders five times faster … [and it] puts us in the right position for continued growth,” Jewel Hunt, group VP of ecommerce for the Boise, Idaho-based grocery retailer, says of the company’s new micro fulfillment centers. 

Launched late last year at two supermarkets in the San Francisco Bay Area, these centers leverage the power of existing grocery stores to expand the grocer’s reach into click-and-collect and delivery services.

Micro fulfillment centers (MFCs) help take some of the distance out of the elusive “last mile” of grocery delivery, Hunt explains. “We’re able to put it into the back of our stores, where it’s closest to the customer,” she says. “It combines the efficiency of automation while still having local products that are important to the consumer.”

Progressive Grocer was given a behind-the-scenes tour of the company’s first MFC at a Safeway store in South San Francisco, where it opened last October; a second center opened at a Safeway in San Jose, Calif., at the end of 2019, both through a partnership with Waltham, Mass.-based grocery technology company Takeoff Technologies.

The model combines the proximity to customers of a brick-and-mortar store with the automation of a large warehouse. These centers typically hold about 15,000 to 18,000 of a grocer’s most popular SKUs.

Digital-First Grocery: A Look Inside Micro Fulfillment at Albertsons
The heart of the MFC is a robotic racking system.

“The micro fulfillment center model is a key element in the store of the future,” Vivek Sankaran, president and CEO of Albertsons Cos. “It combines the efficiency of automation with the ease of meeting customers when and how they want to shop. In working with Takeoff, we can evolve how the MFC ties into our store and ecommerce ecosystems, and accelerate our path to best serve our customers.”

What does it mean to be a “digital-first” grocer?

“It means providing omnichannel solutions our customers are seeking,” Hunt says, “for those who want a brick-and-mortar store and home delivery — a seamless experience for what they want and what they want it in.”

By that definition, Hunt says that Albertsons is headed in the right direction. “I think we stack up well,” she remarks, adding that the company has “come a long way” since rolling out a delivery service in 2001 and subsequently adding Drive Up & Go, the retailer’s click-and-collect service.

“We’re in the early stages, still in the learning mode. We collaborate very closely together,” Hunt says of the relationship with Takeoff. “We’re able to strategize together if problems come up. We feel good about where we’re at.”

The partners have been working together since 2018.

Digital-First Grocery: A Look Inside Micro Fulfillment at Albertsons
Shuttles remove totes from their spaces; elevators move them up and down on their way to a decanting area, where groceries are sorted for each order.

“In collaborating with Takeoff, we’re able to leverage their thought leadership in ecommerce fulfillment with our expertise in running great grocery stores that meet customers’ everyday needs, and that’s exciting turf for us,” Chris Rupp, Albertsons’ EVP and chief customer and digital officer. “By placing an MFC in an existing store close to customers, we can carry a diverse and locally relevant selection of products, with the friendly touch of our local team to service the customer.”

Hunt was part of an Albertsons team that engaged in a “very robust discussion process” with four tech companies before deciding Takeoff was the right fit. “We focus on the customer together,” she notes.

Takeoff is also collaborating on fulfillment solutions with retailers such as Wakefern Food Corp. banner ShopRite in the Northeast, Canadian grocer Loblaw Cos. Ltd., Ahold Delhaize USA’s Stop & Shop, Hispanic grocer Sedano’s Supermarket and, most recently, Big Y in Massachusetts. 

Connecting Synergies

The MFC at Safeway’s 94,000-square-foot South San Francisco supermarket resembles a store within a store. Cases stocked with refrigerated and frozen foods line the perimeter, and there are aisles of dry grocery and nonfood items. But in the center, a sophisticated automated rack-and-tote system prepares orders for pickup and delivery as part of a process designed to make service quicker and more accurate while keeping order pickers out of the way of brick-and-mortar shoppers.

“What makes an MFC successful is being bolted onto a store,” Chad Cummings, Albertsons’ ecommerce director for Northern California, tells PG during a recent visit to the South San Francisco site, which serves an area extending north to the Golden Gate Bridge. “We operate like a normal store from an order perspective.”

Incoming goods arrive from the same warehouses and, on arrival at the store, are tagged either for the store up front or the MFC, Cummings explains. That means no incremental deliveries or new routing logistics for delivery vendors. “Synergies between the store and MFC are connected, so we can offer a bigger catalog than our competitors,” he adds.

The heart of the operation is a robotic racking system housing 6,600 totes, designed by Atlanta-based Knapp and operated by Takeoff’s software. “It’s like a Vegas hotel — long hallways and elevators,” Cummings quips.

"Get closer than ever to your customers." This Steve Jobs quote, among the inspirational messages on the walls around the room, explains one advantage micro fulfillment centers bring to retailers.
"Get closer than ever to your customers." This Steve Jobs quote, among the inspirational messages on the walls around the room, explains one advantage micro fulfillment centers bring to retailers.

Shuttles remove totes of product from their spaces; elevators move them up and down on their way to what Cummings calls a “decanting” area, where groceries are sorted for each order. Each tote holds up to eight UPC-coded items. Dry items like paper goods that would take up too much space in the totes are “dry picked” toward the end of the order process. 

“The magic is determining what needs to be here or be there,” says Trung Nguyen, VP of ecommerce strategies. “There’s a lot of analytics in determining what SKUs go where. We know the exact count of products, what’s been sold and what’s still in there.” Sell-by dates are checked daily to ensure fresh product and reduce shrink.

Pickers complete up to four orders at a time at the Safeway MFC for pickup or delivery.
Pickers complete up to four orders at a time at the Safeway MFC for pickup or delivery.

At two picking stations, each picker can fill up to four orders at once. “This allows us to pick a lot faster than traditional ecommerce, where you’re out looking around the sales floor,” Cummings says. “This takes out all those steps.” Chilled products go into insulated totes with dry ice or gel packs; ambient items are loaded into regular plastic totes. And while some fresh items, like produce and deli, are still picked from the main store, Cummings says, “We pick as much as we can within these four walls.”

Completed orders go out in one of three ways: picked up as part of the retailer’s Drive Up & Go click-and-collect program, delivery within a two- to four-hour window on one of the grocer’s own trucks, or dedicated one-hour delivery through the grocer’s partnership with San Francisco-based DoorDash. The latter two options could be likened to the difference between UberPool and UberX.

These first two locations are seen as the first of many MFCs that will eventually be located at stores among Albertsons-owned banners across the country. However, the retailer isn’t ready to reveal where the next ones might be; Nguyen would say only, “There’s more in the works,” adding, “The end goal is to have high-velocity facilities that can fill large orders in high-density areas.”

Grocery orders at the MFC are prepared for pickup, group shipment or delivery via DoorDash.
Grocery orders at the MFC are prepared for pickup, group shipment or delivery via DoorDash.

What the team would say is that they’re not in a hurry to roll out more MFCs, wanting to fully evaluate the system before casting a wider net.

“We’re ramping up slowly,” Hunt tells PG. “We’re still in an evaluation stage of what markets we’ll take this to next … still doing due diligence on exactly where.”

As such, she declines to lay out any sort of timetable. “We continue to evolve as we roll more value in and expect productivity to increase,” Hunt says. “We have locally relevant products that customers are used to buying. When you can get the same ones by delivery or pickup, that makes a difference and sets us apart in our market.”

The store in South San Francisco has operated under various banners over the years and was last remodeled under the Safeway marquee in 2016, before the MFC was added last year. Attention to detail and service in the store demonstrates that the company is committed to serving shoppers however they choose to access the brand. 

“Brick and mortar’s never going away,” Nguyen says. “People like coming into the stores. But the younger generation is used to the convenience. It’s them we’re preparing for — they want it now, and we want to provide that. But we still have customers who want to walk in, touch and feel, and talk to people.”