It wasn’t long ago that the term “microfulfillment center,” or MFC, frequently cropped up in logistics industry conversations. The trend reflected a need for local inventory sources that could fill accelerating demand for last-mile delivery as e-commerce surged during the Covid-19 pandemic, especially in the grocery market.
You hear the term far less frequently today. Demand for MFCs has softened alongside steadying e-grocery sales over the past few years, but experts say the market for microfulfillment remains strong, with emerging opportunities that hold promise for equipment vendors and e-commerce players alike.
“A lot of the growth [in MFCs] pulled forward during the pandemic. Grocers had to service this channel that they hadn’t paid attention to or that was a small portion of their business,” explains Greg Lary, senior sales manager for logistics technology vendor Knapp, which was an early leader in supplying shuttle-based microfulfillment systems to grocers around the world. “Recent data [show that] demand has leveled off. We’re not seeing major spikes like during the pandemic. We expect to see more of a sustained volume [moving forward].”
Indeed, monthly e-grocery sales have softened since the pandemic days, according to data from the Brick Meets Click/Mercatus Grocery Shopping Survey, an independent research project that tracks online grocery trends. Monthly e-grocery sales were $6.5 billion in March of 2020 and hit a peak of $9.3 billion in March of 2021. Monthly sales have declined or been flat since, although they remain well above those 2020 levels—sales fell to $8 billion in March of 2023 and remained there this past March, 23% above where they were at the onset of the pandemic.
“The new behavior of the consumer is becoming more ingrained,” Lary says. “E-grocery is here to stay and should be considered in the growth plans of our grocery customers.”
Lary and others say microfulfillment technology can help companies address those needs in grocery and beyond. They point to growth opportunities across retail, including the pharmacy and even the auto-parts sectors, as the MFC market continues to evolve and businesses seek more efficient ways to serve customers. Here’s a look at some of the latest trends shaping demand for microfulfillment.
THE CASE FOR FLEXIBILITY
An MFC is a small-scale, automated facility used by e-commerce businesses to store inventory closer to the end-consumer, allowing companies to reduce transportation costs and transit times. MFCs often consist of robotic shuttle-based automated storage and retrieval systems (AS/RS) with manual or technology-assisted picking stations, but they can also incorporate other technologies, including autonomous mobile robots (AMRs), as part of a goods-to-person picking system. The key is that the systems are smaller in scale than what you’d find in a typical warehouse or fulfillment center and are often located in dense, urban areas. They can also be built inside larger warehouses or in the backrooms or storage areas of retail outlets.
One of the biggest challenges associated with MFCs is return on investment (ROI), says Matt Kelly, director of business development and strategic partnership at automated warehouse solutions provider Hai Robotics, which offers an autonomous case-handling mobile robot (ACR) solution for microfulfillment. Kelly describes that solution, the company’s HaiPick system, as an ACR-driven AS/RS.
“I think [microfulfillment] went through a lot of hype … and now businesses are figuring out if it’s the right decision, because it’s very expensive,” Kelly says, emphasizing the low per-item cost of most grocery merchandise compared to the high cost of installing microfulfillment equipment and technology, especially the infrastructure required in fixed-automation solutions. “ROI is really the issue.”
In light of that, flexibility has become a key attribute in microfulfillment, according to Lary, of Knapp. Modular systems that can be easily expanded or adjusted are often the best way to ensure customers make the most of their investment, he says.
“One of the biggest challenges [early on] was [the customers’] real estate requirements,” Lary says, explaining that Knapp’s early MFC designs featured a single layout that didn’t always fit the customer’s space. “One of the costliest parts [of a system] are the modifications that have to be made to the real estate. We realized we needed to be more flexible.”
Today, Knapp’s shuttle-based microfulfillment AS/RS can be customized to accommodate those differences and scaled to adjust to changing business demands: Customers can mix and match totes, trays, and cartons of various shapes and sizes; add racks when they need more storage capacity; and add shuttles for higher performance. This enables customers to design a system that fits their space requirements and budget. Oftentimes, they start small and add to the system over time.
“[It’s] less about ‘here’s what we have’ and more about fitting and using the space,” Lary explains, adding that the Knapp system can also incorporate AMRs—a technology that’s gaining traction in microfulfillment primarily because of its flexibility.
Hai Robotics’ ACRs are a case in point: The mobile robots consist of a base with a tower or ladder-like structure attached for transporting multiple containers at a time. The ACRs come in various styles and heights, with some capable of reaching as high as 39 feet. The robots retrieve cases or cartons from storage shelves and deliver them to workstations staffed by humans for picking and packing. The system’s software allows the robots to identify and retrieve specific totes or cartons within a storage system rather than moving an entire rack or shelf—differentiating Hai’s system from similar, shelf-to-person AMR solutions. The system allows more flexibility than fixed-infrastructure automation, Kelly explains, adding that, to date, Hai Robotics has implemented microfulfillment solutions for customers in the grocery, cosmetics, and e-commerce apparel industries around the world.
Matt Inbody, vice president, global execution excellence for supply chain automation specialist Dematic, agrees that the move toward AMRs will be a key trend in microfulfillment moving forward.
“The trend is toward efficient and cost-effective solutions. Lower-investment systems, such as AMR shelf-to-person solutions, are gaining popularity due to their appealing balance of automation and cost,” he says. “While many systems are still in development and refining their models, the future looks bright for these innovative solutions.”
Yet despite that generally rosy outlook, the grocery industry still faces one big barrier to microfulfillment ROI: cold storage. Kelly explains that, for many companies, the automated equipment that is the cornerstone of microfulfillment often stops short at the freezer because of the high cost of robotic solutions capable of working in extreme temperatures.
“It’s super expensive—and there’s not a lot of technology that can [operate] in that environment,” he says. “Freezer equipment for that application is substantially more expensive than having human beings walking around.”
NEW MODELS, NEW MARKETS
In-store fulfillment holds promise for the MFC market, according to Kelly and others, who say that turning retail storage areas into minifulfillment centers answers the call for systems that support both click-and-collect business and last-mile delivery—both of which are here to stay despite a return to in-store shopping post-pandemic.
“There is a lot of discussion around in-store fulfillment, which is a form of microfulfillment,” Kelly explains. “[You can] deploy a standard system that works much like a warehouse, but it’s in the store.”
Lary agrees, noting that much of the traditional microfulfillment market was designed for that purpose, whether it meant building standalone MFCs in dense, urban areas or carving out space for them in stores. E-grocery will continue to drive that trend, but other growth areas include convenience stores, pharmacies, general retail, and industrial parts—including parts used in the automotive and HVAC industries. Hub-and-spoke models—in which retailers use warehouses with larger automated systems to supply orders to stores—remain popular as well.
“We are seeing both of those models being applied—especially in denser, affluent areas,” Lary says.
Inbody, of Dematic, agrees, adding that flexibility and simplicity are key to making microfulfillment work at all levels, in all situations.
“Simple, easy-to-interface automation will drive the future of microfulfillment centers, reducing the need for large, fixed-automation units,” he says. “We anticipate continued growth in urban-based high-density systems, especially in [affluent] areas with a high population density. The evolving landscape of urban and suburban office spaces will also play a crucial role in the real estate aspect of urban fulfillment centers.”
SIDEBAR: E-grocery opportunities remain strong, despite Takeoff Technologies’ woes
The news that e-commerce microfulfillment specialist Takeoff Technologies filed for Chapter 11 bankruptcy this past spring raised questions about the strength of the microfulfillment market—but at least one of Takeoff’s business partners says the move is not an indicator of the sector’s strength.
Logistics technology vendor Knapp has partnered with Takeoff Technologies on microfulfillment projects since 2017 and extended that partnership as recently as February, adding a modular product portfolio to provide grocery retailers with right-sized automation for high-, mid-, and low-volume facilities. Greg Lary, senior sales manager at Knapp, said the bankruptcy news was a surprise to Knapp and that future projects with Takeoff are on hold, although Knapp continues to service existing projects the companies developed together.
“We were one of the creditors financially impacted. It was a surprise to the organization for sure,” Lary says, adding, “Our relationship is good, [but] we are not actively pursuing more projects through Takeoff while they figure out how and if they go forward.”
At press time, Takeoff was still pursuing the sale of its assets.
“I think the situation is going to raise concern about the condition of microfulfillment in the industry in general, and I think, at a surface level, I can understand why,” Lary adds. “But I don’t think Knapp, as an organization, sees Takeoff’s situation [as a reflection of] e-grocery [demand] or how Knapp plans to invest. We still see the channel as being viable and grocers invested in it; [and] automation is part of it. The vision still makes sense, even though Takeoff has some challenges at the moment.”
