Responding to ecommerce growth: a conversation with Takeoff Technologies

Stewart Samuel
Program Director - Canada
@RetailAnalysis

Date : 21 May 2020

The rapid growth in ecommerce penetration has been one of the defining features of the coronavirus pandemic. Faced with increasing demand, retailers have been looking at temporary and longer-term solutions to boost capacity.  We recently sat down with the co-founders of Takeoff Technologies, one of the leading firms in the online grocery hyperlocal, automated micro-fulfillment space. We discussed the benefits of this model and the impact of the pandemic on channel development.

Takeoff Technologies

Boston-based Takeoff Technologies was established in 2016 by José Vicente Aguerrevere and Max Pedró, who hold the roles of CEO and president, respectively. The company has been making the headlines over recent years, signing-up multiple retailers globally to their micro-fulfillment centre (MFC) model. This includes Albertsons, Ahold Delhaize and Wakefern in the US, Loblaw in Canada, Woolworths in Australia and Majid Al Futtaim in the Middle East.

We sat down with José and Max to understand more about their business and fulfillment model, especially given the rapid growth the grocery ecommerce channel is experiencing during the coronavirus crisis.

Source: IGD Research. Takeoff Technologies’ José Aguerrevere.

IGD: Tell me about Takeoff Technologies

José : Hyperlocal automated micro-fulfillment is a phrase which we coined and is all about having automation in the right location. We set out to develop a model in what is the hardest online category, food, by addressing the two biggest cost elements. Using robotics, we’re tackling the costs associated with the picking and packing of orders, and we’re minimising last-mile costs by assembling orders close to where shoppers live.

Max: We specifically focused on developing a model for supermarkets given the investments retailers have already made in their networks. We knew they wouldn’t be walking away from these assets. Our goal is to help retailers sweat them harder.

Source: IGD Research

IGD: You’ve recently published new research on the online grocery channel. What were the key findings?

José : Our aim was to understand what it takes to win online and better understand the trade-offs customers are willing to make on price, service, assortment and speed. What the study showed is that the price of pickup or delivery is most important and that the perceived value of pickup is significantly higher than delivery. With curbside, or store pickup, retailers have a powerful weapon.

Max: It also revealed that having an infinite assortment has negative value, and what shoppers want is the supermarket assortment, ready for pickup or fast delivery at no cost. The report also highlighted that next-day delivery does not offer the same value to customers. While we didn’t set out to vindicate our model, we were pleased with the high level of alignment.

IGD: The report also talks about the need to meet different missions through ecommerce and stores. Is the MFC model best suited to fulfilling large baskets?

José : The most important trip is the stock-up trip centred on the supermarket assortment. We wanted to ensure that retailers could do this through their existing assets. If you think about it, supermarkets have everything that is needed. Receiving docks, delivery bays and product.

Max: What we have seen is that customers don’t want to change the products they buy when shopping online. The expectation is that they can buy what’s available in-store.

IGD: How do you see the MFC model competing with new ultra-fast delivery services from other grocery retailers? Beyond Instacart, the likes of Hy-Vee and Walmart have launched two-hour services. As lead times become narrower, can the MFC model be adapted for this?

José : Most of our retail partners offer pickup or delivery within a four-hour window but can support two-hour delivery windows and even shorter for pickup. Using our automated model, orders can be assembled in three to five minutes. Customers within a five miles radius can pick up within an hour if needed.

Max: Many of our clients use a hub and spoke model, automating picking in one location but enabling pickup in other stores. The journey to a spoke can take an hour so it is challenging to offer delivery within an hour. What we see is that the shopper does not value one-hour delivery as much. Two to three hours is the sweet-spot.

IGD: We’ve seen several third-party delivery companies emerge and continue to gain share? How do these work with an MFC setup?

José : Our retail partners work with many of these companies. What we have seen is that the delivery companies like our model because the order picking takes place close to where the shopper is.

Source: IGD Research

IGD: Many retailers will be looking at MFC concepts following strong channel growth due to the coronavirus pandemic. Is the MFC model the most financially attractive model? Is this the best model for retailers that don’t want to charge a pickup fee?

José : The premise behind developing our company was to make online retailing viable for supermarkets while offering products for the same prices as in-store, with no fees and available same-day. This is only really feasible with an automated model.

IGD: In Europe, many retailers have made significant advancements with in-store pick rates, particularly compared to North America. Does the MFC model remain as attractive?

José : The most inefficient model is supermarket teams manually picking orders themselves. Rates improve significantly with dark stores, but with our model enables around 160 items per labour hour, or around 145 items when you include some items which are added from the store range. Even compared to the best store models, it offers a 50% productivity gain.

Max: The key is having volume; it must be there from day 1 to drive the MFC hard. The model is designed for 4,500 to 5,000 orders a week for same-day home delivery. A strong business case can be made above 700 orders per week, while anything less than 300 should be a manual pick. What we have seen during the crisis is that volumes in most stores have accelerated significantly.

Source: IGD Research

IGD: What can product suppliers do to improve the efficiency of an MFC?

José : We designed the MFC so suppliers wouldn’t have to change anything, our goal was to keep friction to a minimum. However, as part of our next iteration, we’re going to be looking at replenishing in totes into the MFC. Sometimes a case is too much, and by replenishing in individual units, we can also make the facility smaller.

IGD: How are retailers making ranging or assortment decisions for an MFC?

José : We adopt a purely data-driven approach. The average assortment is around 12,500 products but the size of the catchment also drives this. Most MFCs serve around 4,000 primary households. While we aim to have most products in automation, but the ability to supplement with other items in the store range is an important consideration.

IGD: How has your business coped with COVID-19? Has the roll-out been put on hold?

José : We’ve not seen any real disruption and we continue to have sites going live. If anything, the crisis has made it slightly easier in getting the necessary permits. Food retail has been classified as a strategically important industry in most markets.

Max: We are accelerating the pace of roll-outs. Many clients are pulling forward orders and deployments as they have been unable to fully meet shopper demand for online shopping. The fundamentals of the industry remain strong and we’re going to be expanding our geographic deployment in the coming months.

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