You are here: Home » Reuters » News
Business Standard

Focus: Ahold ups stakes in U.S. grocery war with mini-"robot supermarkets"

Reuters  |  EINDHOVEN, Netherlands/NEW YORK 

By and Melissa Fares

EINDHOVEN, Netherlands/NEW YORK (Reuters) - Grocery group Delhaize will roll out small, automated warehouses to speed order picking and cut delivery times, has learned, as it revamps its business in response to rising competition in a fast-growing sector.

At an investor event on Nov. 13, the world's eighth biggest is set to showcase a partnership that will allow it to automate order collection at mini "robot supermarkets" attached to the stores of its U.S. chains like

That marks a departure from its previous strategy of relying more on manual labour at bigger warehouses, or on a mixture of man and machine, to meet

Now Netherlands-based Delhaize is teaming up with Takeoff, a which builds small warehouses that stack groceries to the ceiling to save space and use robot arms to assemble shoppers' orders for items such as beer, milk, bread and fruit.

The warehouses serve as condensed supermarkets that can supply several stores with click-and-collect orders. They cost about $3 million to build, which says is less than the cost of a typical store revamp.

"is preparing for a major push," Curt Avallone, Takeoff's who led digital innovation at until 2003, told

"If it goes well, both from their side and our side, the hope is we would rapidly be able to build quite a few."

Ahold confirmed the deal on Wednesday and said it should help expand online faster and at a lower cost than with standalone warehouses.

"With the robotized solution we can optimize those picking costs and be closer with micro fulfillment to our catchment areas. We also reduce the cost of the last mile," he said.

Ahold's shares jumped 5 percent on Wednesday as it reported third-quarter results that beat analysts' forecasts, lifted by strong and growth in its key markets.

ONLINE GROCERY WAR

Ahold's move is the latest salvo in a war for the that has escalated since Amazon's takeover of last year. since launched same-day grocery delivery with Amazon's Prime Now in more than 60 cities. Other retailers are also racing to respond: will test Alert Innovation's Alphabot automated grocery picking at a store in New Hampshire, and has teamed up with British

said it will disclose the location for the first three U.S. sites out of a planned 20 high-tech warehouses in the next couple of weeks. They will take about two years to build and each cost about $39 million.

Ahold Delhaize, the operator of U.S. chains such as Giant Food, and Hannaford, acquired Chicago-based in 2000 which is still the

However, growth has slowed at since bought and as supermarkets -- including Ahold's own chains like -- team up with start-ups like to offer curbside pick-up, or one- to two-hour delivery.

Ahold reported U.S. growth picked up in the third quarter, but Muller said he was still not happy with that.

HAND TO MOUTH

Until now, Ahold's strategy has been largely manual. At its warehouses, known as "dark stores", pickers grab items from shelves and put them into crates for packaging and delivery.

has decades of experience in delivering groceries to people's homes, starting in the in 1986 when its chain took orders by phone or fax.

At one warehouse outside the Dutch city of Eindhoven, pickers each grab an average of one product every 10 seconds, walking about 4.5 km a day. Algorithms work out the shortest path through the aisles, and try to minimise trolley congestion. Pawel Kamienczuk, a 28-year-old order picker from Poland, sweats as he races down an aisle, trying to meet a target of 380 items an hour. "At the beginning, it took time to get used to it, but now I don't feel tired," he said. Kamienczuk wears a device like a on his wrist which tells him where to go and which items to grab next.

He scans each product with a device mounted on his forefinger and puts it into one of 18 blue crates stacked on a large trolley.

warehouses can pick and pack 135-140 units per labour hour, lower than Kamienczuk's rate because it takes into account work done by others to unload supplies, stack shelves, assemble orders and pack delivery vans.

The figure is also less than the 163 units Ocado reported for the first half of 2018, but analysts say it is impressive given than Albert Heijn's capital outlay for its centres is a fraction of the cost of Ocado's automated warehouses.

Efficiency is key at a time when labour costs are rising in the and

The Dutch jobless rate is at an 18-year low and U.S. unemployment is around the lowest in five decades, wage pressures are rising and companies are increasingly complaining about a scarcity of workers.

Last month, said it would raise the minimum wage for U.S. workers to $15 an hour, in part to attract staff.

At Ahold's warehouse in Jersey City, pickers who start on about $12 per hour with benefits can make up to $3.50 an hour extra if they beat speed targets, but they are also closely monitored for quality: a dented tin could mean a refund.

"When we shop, we have many people that check after us," said Amal, an expert "shopper" who specialises in selecting bananas, Peapod's top selling product.

The in is the firm's biggest and most sophisticated to date in terms of automation.

There, crates move along conveyer belts to teams of pickers who focus on different food categories, while robots add like shampoo. Peapod does not share pick times.

Despite the automation, Peapod employs 825 people here, working two shifts from 5 a.m. until 2 p.m. and from 5 p.m. until 2 a.m. in a warehouse with seven temperature zones.

NEXT DAY VERSUS SAME DAY

Peapod has only offered next-day delivery so far. The partnership with will enable the group to offer same-day delivery, or click-and-collect, initially to customers living near a pilot warehouse at a Shop & Stop in

Avallone declined to comment on the financials of the Ahold deal, but said should be able to roll out the concept quickly as it takes 16-20 weeks to set up its 10,000 square foot warehouses, which can handle up to $50 million in annual sales.

That contrasts with Ocado's newest facility in Britain, which is a 563,000 square foot site, with a potential annual turnover of 1.2 billion pounds ($1.55 billion).

The U.S. grocery market is still in its infancy at just 1.6 percent of sales, but it is expected to more than double by 2023, according to industry research group IGD.

Ahold, which makes almost two thirds of its sales in the United States, wants to boost sales to 5 billion euros ($5.8 billion) by 2020, or about 8 percent of total turnover, from 2.8 billion in 2017. It will update that target next week.

Its U.S. should near $1 billion by the end of the year as it creates a for all of its store-based brands, along with its Peapod, Muller said in August.

($1 = 0.7671 pounds)

(Additional reporting by Lisa Baertlein in Los Angeles; Anthony Deutsch, Toby Sterling and Bart in Amsterdam; Piotr Lipinski, Zuzanna Szymanska and Pawel Goraj in Gdynia; James Davey in London; Editing by Mike Collett-White)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, November 07 2018. 14:28 IST
RECOMMENDED FOR YOU