Kroger operates over 2,700 stores across 35 states, making it the biggest traditional grocery chain in the United States, as well as one of the world’s biggest retailers by footprint. But the company was comparatively late to embrace the potential of the web, and is now under pressure from Walmart’s further investments into the grocery category and Amazon’s entry, particularly as both of the retail behemoths offer a robust online grocery shopping and delivery experience. In response to the changing grocery landscape, Kroger is now building massive autonomous warehouses, which the chain calls sheds, in key geographies in order to compete and win market share among the growing online grocery shopping consumer set.
Each shed costs around $55 million to build, and Kroger has currently constructed two of a planned eleven of the facilities, one near the company’s headquarters in Cincinnati, Ohio; and a second outside of Orlando, where the grocery chain doesn’t maintain a physical presence but is hoping to break into the market with the new online ordering grocery solution. The approximately 375,000-square-foot fulfillment centers stock more than 30,000 different grocery, personal-care and household products which are stacked in layers of crates three stories high that fill the warehouse in a grid pattern. The grocery-picking robots move around the grid and reach down into the crates to grab specific items, or even the entire crate, in order to fill customer orders. Algorithms determine where both items and robots are positioned atop and along the grid, with more frequently ordered products near the top. The order-picking robots can fill a 50-item order in less than 5 minutes, with 99% accuracy, which is multiples faster than a living human associate is able to. Each order picking grid is about the size of a football field and made up of a chilled side for perishable and frozen items, plus an ambient side for shelf-stable consumer goods and household items.
Kroger has several checkpoints along the order fulfillment process to make sure fruit is moldy, items aren’t broken or leaking, and to catch other product issues that would leave shoppers with a bad impression upon delivery. More algorithms and machine learning features help with packing, making sure that products are evenly distributed within delivery bags, and that fragile items are handled with care. Each order-picking and delivery-fulfillment shed can equal the sales of around 20 brick-and-mortar Kroger stores, and the company has said the automated warehouse facilities will be supplemented by an aggressive expansion of the grocery retailer’s curbside pickup offering. In addition to the robots, each shed will also employ around 400 people in customer service, engineering, operations, inventory and quality management, and transportation jobs.
The technology hardware and software for the warehouses, including the order-picking robots and the algorithms directing their production patterns, comes from the British online-only grocery chain and automation supply company Ocado Group. Kroger’s partnership with the automation technology company includes taking a 6% stake in the business. Ocado will also provide software that helps Kroger process its curbside orders and direct the fleet of delivery drivers dropping off bagged groceries at customers’ doors. The vans themselves act as giant billboards, building familiarity with the Kroger name and brand as it enters new markets.
While Kroger’s competitors like Walmart, Albertsons and Ahold Delhaiz are building micro fulfillment centers that can fit in the back of a store or a separate location nearby, Kroger’s Ocado-powered sheds can triple the order-picking productivity of those operations and it is the sheds and their large automated warehouse facilities that Kroger is betting its online future on versus the more hybrid approach of other retailers. Kroger’s ambitious e-commerce push also includes building out a digital marketing business to serve ads from brands like Kraft-Heinz to online shoppers.
This article originally appeared in the PSFK report, Building Next Generation Fulfillment Operations.