April 26, 2021 at 11:10PM

“The current economics of shipping groceries straight to customers’ doors is a challenge — and keeping fulfillment and shipping costs down for sellers and customers is necessary for a grocer to grow,” Adrien Nussenbaum, U.S. CEO and co-founder of Mirakl, told PYMNTS in a recent interview. He added that, given the “the fluid nature of grocery inventory,” a marketplace model “gives grocers the freedom and flexibility to test out new categories and learn what resonates most with customers — all while earning incremental revenue.”

This marketplace approach worked for Mirakl’s partnership with Kroger to create the Kroger Ship ship-to-home marketplace, adding an additional revenue stream for the grocer. It makes sense, given that inventory can be a sticking point for grocers, especially for those who have laid an eCommerce business on top of their existing brick-and-mortar business rather than building an eCommerce infrastructure that accounts for the unique challenges and opportunities of the channel. For instance, grocers that have relied on third-party delivery services such as Instacart to provide eCommerce options, delivering products from stores’ shelves to consumers’ doors, struggle to offer a selection broad enough to compete against digital-native grocers.

Some grocers have turned to micro-fulfillment centers (MFCs) — small, automated warehouses that can fulfill several thousand orders per week. These facilities are a major step up from the fulfillment capabilities of a consumer-facing supermarket, while the automation offers a fulfillment strategy that is far less labor intensive than a model such as Instacart’s in which pickers select products from stores by hand. The MFC approach has been approached by eGrocery veteran FreshDirect. As the grocer’s Chief Operating Officer Timothy Knoll told PYMNTS in an interview, “Micro-fulfillment is central to our expansion strategy and underscores our industry innovation. The technology allows us to turn our existing regional facilities into high-velocity automated distribution centers, speeding our expansion and growth into in our existing service footprint.”

Grocery app Farmstead fine tunes the MFC model with its proprietary Grocery OS software which, among other capabilities, uses its artificial intelligence (AI) to optimize inventory, managing stock based on a range of first- and third-party data. As Pradeep Elankumaran, co-founder and CEO of Farmstead, told PYMNTS in an interview, “We’re essentially a prediction company that determines in very short periods of time what is going to happen so that we can control the costs of that outcome.”

For smaller grocers that cannot afford to build out their own fulfillment capabilities in this way, a data-optimized third-party marketplace such Mercato may help their digital channels reach a wider audience, though it bears similar limitations to Instacart. The platform recently raised $26 million in Series A funding to build out its team and its data analytics platform after a remarkably strong 2020, in which the company helped lift its merchants’ sales by 1,300 percent. Given the platform’s focus on small businesses and specialty food sellers, the marketplace allows these retailers to turn their limited selection into an asset rather than a liability.

Solving the inventory issue is key for grocers large and small. PYMNTS research finds that 55 percent of U.S. consumers consider inventory to be one of the things they value the most when considering where to shop, and many of those consumers rank it as their number one priority. Ultimately, leading eGrocery players will be those that can maintain inventory that is, if not comprehensive, at least consistent and reliable.


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