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Urban Fulfilment Centres
In the Grocery Guru’s pilot episode, Andrew Grant and Darren A. Smith discuss Urban Fulfilment Centres and how it will affect the UK grocery industry. Find out what UFC’s are, and how they will impact the grocery industry. Tesco is first with Asda hot on their tail.
You Can Read the Full Urban Fulfilment Centres Episode Transcript Below:
Darren A. Smith:
Andrew, how are you doing?
Andrew Grant:
Good morning. I’m very good. A cup of tea. All ready for a few minutes’ chat.
Darren A. Smith:
Cool. So, we’re here with the Grocery Guru, the man that is Andrew Grant, and this is our weekly slot for about 10 to 15 minutes, let’s see. We’re going to ask him what the latest is going on in the world of grocery. We wanted to call him Andrew Gandalf, but he won’t let us, so it’s going to be Guru. So, Mr Grocery Guru, what’s going on in the world of grocery at the moment?
Andrew Grant:
Well, a test for you Darren. If I said to you UFCs, what springs to mind? It’s the latest happening thing.
Darren A. Smith:
Ultimate Fighting Champion.
Andrew Grant:
That’s a good one. Not unidentified flying curry?
Darren A. Smith:
Oh okay. Yeah. I like that.
Andrew Grant:
That’s what happens if you leave the microwave on too long. Any more guesses? The latest happening thing in the world of grocery that every national account manager needs to be aware of.
Darren A. Smith:
I’m on the spot now. Urban depot thing.
Andrew Grant:
Well, you missed the F and the C out, but you were close with urban. Right, urban fulfilment centres, the latest buzzword in the world of grocery, UFC.
Darren A. Smith:
UFC. Yeah.
Andrew Grant:
Everyone’s probably heard the stats, it’s been very well documented over the last few months. But as a result of lockdown, obviously, a lot of people decided they weren’t going to go to supermarkets anymore, either because of the restrictions of going round those supermarkets or the fact that they were worried about catching the virus. So as a result online home delivery grocery has grown more in six months than it did in the previous, I think 10 years is the stat.
Andrew Grant:
We’ve got some of the retailers now up to 30% of their orders are online.
Darren A. Smith:
I didn’t know that. So a third of their sales are online now?
Andrew Grant:
I seem to remember that stat. For goodness, don’t hold me to it, I’m sure you will.
Darren A. Smith:
No. It sounds plausible.
Andrew Grant:
But they’re basically certainly 10 years’ worth of growth in six months. Now, obviously, anybody that knows anything about home deliveries, there’s two basic models. You got the Ocado and the Amazon technical model, whereby they have huge, massive, great automated warehouses, cost gazillions in capital spend to get them up and running. Or you’ve got the route that Tesco pioneered, God, what, 15 years ago I think now, maybe longer than that, whereby you pick in store. So you use the quiet times in-store and you send somebody round as almost like a phantom shopper filling up a trolley with all the stuff. That’s a very cheap route in, but it’s labour-intensive and it’s slow, and it’s expensive from a cost per pick basis.
Andrew Grant:
So the Ocado system, once you’ve spent your gazillions, the cost per pick is actually very cheap, but you’ve got to spend the gazillions. The Tesco model, the Sainsbury’s model, the Morrisons model, doesn’t cost any capital investment but costs you quite a lot in terms of having one person picking the stuff for one store.
Darren A. Smith:
I’ve seen them in stores, like personal shoppers going round with trolleys like customers and they’re doing the shopping for it. Yeah. Okay. Get it. Yeah.
Andrew Grant:
And think about it, if you like, how we’ve been duped for the last 50 years, because if I came along to you with a concept for a new consumer-facing business, and I said, “Darren, we’ve got this fantastic business. All you need to do is drive five miles out of town, you need to find yourself a parking spot. You need to get out of your car, find yourself a metal container on wheels where the wheels don’t actually work very well. And then, I want you to spend 40 minutes wandering around with this metal container getting your grocery shop. And once you’ve done that, you need to then queue up, empty everything from your metal container onto a belt, stand at the other end of the belt, pick all the stuff up again, put them in a metal container, wobble all the way out to your car again, take them out again, to then take them home to take them out again.” So I don’t know how many touchpoints that is, but how does that sound to you? Does that sound like a good consumer concept that’s going to take off?
Darren A. Smith:
I’ve never heard it put that way, but you’re right, you’re right, we do a lot. And also, at that conveyor belt you’ve got to take them off one end and put them on the other end bloody quickly because the checkout operator’s [inaudible 00:04:55].
Andrew Grant:
Yeah. And if you’re in an Aldi or a Lidl they just don’t… they throw them at you.
Darren A. Smith:
Yes.
Andrew Grant:
So yeah, we have been duped, the Great British public, to basically grocery shop. Whereas, what makes much more sense if somebody says, “You place an order by phone or internet, and we’ll deliver it to you.” Because if you buy a telly or a fridge, that’s what happens. So what the pandemic has done is actually just got everybody back to probably where it should have been originally which is you get your food delivered. So now, the grocers are grappling with just uncontrollable demand for home shopping. They’ve basically all come to the conclusion that this is not temporary, that the pandemic has changed people’s behaviours forever. And basically, they can’t afford to keep on doing the in-store pick operations, it’s just too expensive.
Andrew Grant:
They’ve got to grapple with do we go Ocado and spend gazillions, not good for the old shareholders, or do we find another route? And very, fortunately, they have got the perfect answer. Do you remember when you were in the store, because you were in Sainsbury’s, weren’t you?
Darren A. Smith:
Yeah. I was.
Andrew Grant:
When you wanted to disappear from your manager’s site to maybe have a quick fag or maybe get friendly with one of your assistants, where did you go? I’m sure it was the latter, Darren?
Darren A. Smith:
Warehouse.
Andrew Grant:
Into the warehouse, because in the good old days every supermarket had a great big stockroom where you could go and hide. And then in the, what was it, the ’90s, they turned all those stockrooms into non-food areas and started stocking videos and magazines and health and beauty and all of this sort of stuff, which now Amazon’s stolen.
Darren A. Smith:
That’s true. Now, a quick story because my brother was a store manager and he got fed up with meetings, he hated meetings. So he said, “We’re having no more meetings in the canteen or the meeting rooms,” wherever they previously were, “I’m holding all my meetings in the walk-in freezer.”
Andrew Grant:
Yes. Okay.
Darren A. Smith:
His meetings were 10 minutes and people spoke very quickly.
Andrew Grant:
Absolutely. Probably now not allowed under health and safety and he’d be fined a lot of money, but fair enough. As were a lot of the stuff that you did in stockrooms, you’d be fined and probably locked up.
Darren A. Smith:
Warehouse on Amazon. Yeah.
Andrew Grant:
Yeah. Right. So yes, what the supermarkets have discovered, and guess who’s front of the game as always, the big T. They’ve discovered that they’ve got these warehouses underutilised in perfect locations, which are basically these huge out of town superstores, all conveniently located on ring roads with easy access into the town or the city, the relevant town or the city. So Tesco has already started this, first, one’s opened in West Bromwich, I think. An urban fulfilment centre where they take the excess space of an Extra and turn it into a dark picking store so that all the vans turn up, it’s semi-automated and all customers orders are picked in dark, and then very rapid delivery given the fantastic location most of these big out of town superstores are. So that’s the model.
Darren A. Smith:
Okay. So how does that compare to me shopping at Ikea 15 years ago and still seems to be I wander around a warehouse racking and grapple to get something from Ikea, is that the same or different?
Andrew Grant:
No, because the physical store stays there. If you still want to shop 50 years ago and get a metal trolley and have to unpack your own stuff, the store is still there. But this is a picking depot not open to the public. But if you place an online order, rather than somebody going around with a trolley and pushing it into your knee as a real shopper, they do it in the dark in the other half of the store.
Darren A. Smith:
Got you. Got you. Okay.
Andrew Grant:
Which makes it much more efficient, much lower cost per pick, it will make home shopping potentially break-even or profitable for them, and it gives them the massive capacity. So here, another question. I’ve mentioned the big T who will be one of them, who is going to be the other biggest winner as a result of this, and who will be the losers? So here we are, I’ll put you on the spot, final question for today.
Darren A. Smith:
I don’t know. I’m thinking supermarkets that have a lot of retail estates, but a lot of white elephants, so is that going to be-
Andrew Grant:
Which supermarket group has the biggest average store space?
Darren A. Smith:
Cor. I would go to Sainsbury’s.
Andrew Grant:
No.
Darren A. Smith:
Asda?
Andrew Grant:
Asda.
Darren A. Smith:
Yeah. Of course. Okay. Yeah.
Andrew Grant:
Asda is effectively a hypermarket operator, and under Walmart was the hypermarket model. Now being bought by Euro Garages. Why would they have got themselves a convenience outlet? But the brothers that have very cleverly bought Asda, whose names I forget, have just basically bought themselves urban fulfilment centres on the ring roads of very major city in the UK.
Darren A. Smith:
And do you think they’ll follow the same model?
Andrew Grant:
I think they have to because if home shopping is going to get towards 50% of all grocery sales you can’t not.
Darren A. Smith:
Yeah.
Andrew Grant:
If you like, if Asda and Tesco have got the perfect estate model for urban fulfilment centres, who hasn’t?
Darren A. Smith:
Aldi?
Andrew Grant:
And Lidl. Small stores in the middle of towns where it’s congested and they’ve got no space. This could be a major game-changer to finally cut down what was seemingly the inexplicable rise of Aldi and Lidl.
Darren A. Smith:
Very true. So we could see a very different landscape in the next five years where Tesco come back to dominance and growth, Aldi and Lidl start to be suppressed, Sainsbury’s come back up, Asda comes back up. What about those in the middle like Morrisons?
Andrew Grant:
I think people like Morrisons and Sainsbury’s, they haven’t got the perfect store estate. They’ve still got some big stores. But you look at Tesco’s estate, they’ve got an Extra in just about every moderately sized urban area. So I think they’d be the big winners. Asda has got, they’ve got the store footprints for it. Aldi and Lidl struggle and they’ve said that Aldi, in particular, is looking at home delivery, be interesting to see how they do it. Anyway, for the nans watching, I’m going to leave you as you do any good soap opera with a cliffhanger. Next time we’re going to talk about why these changes are going to finally kill category management as you understand it, and probably change job forever, possibly for the better. So it’s a positive cliffhanger.
Darren A. Smith:
All right. All right. Okay. What’s that, 10, 15 minutes with our Grocery Guru, Andrew Grant, thank you very much. You were talking about UFCs, which is not the Ultimate Fighting Champion but is urban fulfilment centres. Okay. Andrew Gandalf, until next time.
Andrew Grant:
Bye-bye.
Darren A. Smith:
Bye.
