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With more ecommerce adoption, brands and retailers are seeking ways to continue to make online shopping more convenient, and seamless.
One area where they’ve continued to make gains in recent years is the speed of delivery. In what felt like rapid succession, two-day became next-day became same-day.
These advances have highly visible results when customers are delighted by receiving a package quickly. But the systems that make these continuous gains in speed aren't always evident on the surface. At the same time, the expectation that items will be delivered quickly can leave brands and retailers struggling to keep up.
Behind the scenes, logistics has been undergoing change as delivery times get faster.
A fast-emerging piece of this evolution is an approach called micro fulfillment. It builds on the fulfillment center model, in which goods that are ordered often are moved to a central place. Once a customer places an order, items are picked, packed and shipped out.
When this model emerged, fulfillment centers were typically large warehouse facilities located in rural areas. While strategically located these centers in areas between cities could help them reach large swaths of the country, these centers are typically located further from population centers.
As delivery times must speed up, being closer to customers provides an advantage. Micro fulfillment adds smaller-scale warehouse centers that are located within metro areas. Placing them along popular shipping routes only adds to the benefits.
Vast facilities can be augmented by smaller centers in dense areas.
Clifton Cooper, director of automation and innovation at storage and warehousing solutions company Smart Warehousing, described the thinking this way: “Let’s build a network of these micro fulfillment centers, highly automate them, only keep a small inventory onhand and let’s build this network from our delivery centers to these small MFCs so we can get shorter delivery times to our customers to make them happier, so they’re not waiting on products that they’ve purchased.”
One advantage of this model comes in placement. After all, the closer an item is to a customer, the faster one can get it to them.
Inside the MFC, there are also a few key operational considerations to execute this. It requires knowing which items are most likely to be purchased, and matching them with what’s particularly in-demand for the community that surrounds the MFC.
The size of products must also be considered. Smaller items that can be stocked in volume are preferred, as opposed to big-ticket items that take up space, and may be purchased with less frequency. Certain categories, such as apparel, food and beverage and personal care, tend to lend themselves to MFCs better than others.
Then, the items must be moved into place ahead of when they are ordered, so they are ready to go when the buy button gets clicked.
In a certain sense, it means knowing what a customer will buy before they buy it. As Cooper puts it, it’s about being “pre-emptive.”
That’s a complex set of considerations. But when we asked Cooper about the key to making it all run, he had a simple answer.
“Data, data, data,” he said. “Data is gold."
Data is used to determine each of the points above, and optimize the process that gets the items out the door. Analytics is performed that takes each of the dynamics into account, and processes can be automated as a result. Across the industry, the technology that can be put to work to make micro fulfillment more efficient is advancing quickly, from machine learning models that predict indicators like low stock levels to robotics that bring efficiency and spatial advantages.
As the model grows, a number of approaches to micro fulfillment are emerging. Brands don’t have to stand up MFCs on their own, as many third-party logistics providers run delivery.
Major retailers with existing footprints are also putting their own spin on micro fulfillment as they seek to build logistics networks from their stores out. With large stores that already house goods in population centers, Walmart and Target are turning sections of their stores into micro fulfillment centers of sorts. From there, they work with contract delivery firms (like Target’s own Shipt) to bring packages to customer homes from there.
Showing the model's linchpin status to ecommerce operations, each company shared data about how many orders were fulfilled in stores on recent earnings calls. Target said 95% of its total orders were filled in stores in Q2, while Walmart pointed to 40% year-over-year growth in the metric. Target is also adding sortation centers where items are sent from a store for processing before heading out for delivery, with nine expected to be online this year.
In grocery, micro fulfillment is allowing grocers to enter a market without opening a store. Kroger recently expanded into Florida with just an ecommerce business, and no public-facing physical footprint. MFCs are an important part of the network, allowing for 30-minute delivery.
If executed well, the micro fulfillment model can help to save on costs. Proximity presents the potential to reduce transportation costs, and minimize the steps a package needs to take to get to the doorstep.
“If a customer is two states away versus two streets away, that’s a big difference in how much it costs to get that product to their doorstep,” Cooper said.
But a big advantage also comes in the customer experience.
Deliver a package quickly and on-time, and it improves the chance a person will seek to buy another.
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Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.