Takeoff Tech's hyper-local micro-fulfillment: Why the time is right for store-level automation

The co-founders of TakeoffTechnologies , José Vicente Aguerrevere and Max Pedró, started with the recognition that the biggest barrier to success in grocery ecommerce has been that the business isn’t profitable – every dollar that shifts from in-store to online reduces profitability. They asked what would happen if the advantage of automation were applied to the store, and then created an efficient micro-fulfillment center solution that transforms eGrocery economics to solve the challenges of cost and the last mile.

We sat down with José Vicente (now CEO) and Max (now President), to better understand their vision of hyper-local fulfillment and why it’s an idea whose time has come.

This Q&A is par tof the Brick Meets Click Spotlight series. Special thanks to our sponsor Takeoff Technologies, Inc.

BMC: What does the Takeoff Technologies approach bring to grocery ecommerce?

José Vicente & Max: Takeoff leverages automation and location to give a store its own hyper-local micro-fulfillment center, making it possible to assemble online orders profitably and in close proximity to the customer. It’s a two-part solution to the core economic challenge of grocery ecommerce –profitability.

First, we bring robotics and automation to the task of assembling orders, which makes it much faster, more efficient, and less expensive than current manual methods. Second, we do this at the store location close to the customer’s home. This has a lot of cost benefits – from taking advantage of existing supplier delivery points and store personnel, to making it a lot cheaper to cover the last mile.

What motivated you to create Takeoff Technologies?

The two of us have been in grocery for 20 years, so we know first-hand how challenging the industry is. A couple of years ago, we were having coffee with Mick Mountz, one of the founders of Kiva Systems (now Amazon Robotics),and he was telling us about Kiva’s solution for automating the warehouse. We were both impressed with the economic advantages. After thinking about it for awhile, we started asking ourselves, “Why not bring these advantages to the grocery store?”

When we ran the numbers, we were amazed to see the amount of savings that were available. We thought this could be a breakthrough: creating a super-efficient, store-based system for online grocery that wouldn’t just stop supermarkets from losing money, but actually make ecommerce more profitable than the store.

The automation piece was a big idea, but realistically it also represented a significant transition that could take supermarkets a lot of time and cost to develop by themselves. We believed we could bring a lot of value to retail operators by offering a turnkey solution. The void we wanted to fill was supplying a system that did two things:

• It was fast to market because it didn’t take a lot of time to get up and running.
• It was super-efficient, so that the economic advantages on both the balance sheet and the P&L were compelling.

That’s when we decided to make Takeoff Technologies a reality.

How does Takeoff Technologies improve grocery ecommerce operations?

These days, most supermarkets (and other retailers) have excess space in their stores. We work with retailers to identify 8 to 10thousand square feet of underutilized space in their existing locations, and we convert that space to a complete, automated micro-fulfillment system. It’s anend-to-end solution that includes robotics, an ecommerce platform, online inventory management, and customer service, reporting, and analytics.

The expense of manual in-store picking is one of the major reasons why ecommerce loses money for grocery retailers.

• The robotic automated picking center can pick up to 600 lines per hour (900 items), compared to 45 lines (60 items) per hour forin-store picking.
• The system is capable of handling 3,500 online grocery orders per week per location on a 2-hours service policy.
• It’s easily replicated and can be rolled out rapidly – it takes about 12 weeks to install a new facility as opposed to twoto three years for a typical automated distribution center project.

Co-locating the system in existing locations also reduces costs by taking advantage of:

• existing supplier delivery points
• existing labor force
• lower transportation costs compared to a remote warehouse or dark store
• lower cost of delivery since customers usually live close-by, and increased pickup activity since people are already accustomed to stopping by the store take care of their grocery needs

One way to look at this is that we’re making it possible for grocery retailers to convert dead space into a profit center.

Why do you think the time has come for this kind of micro-fulfillment solution?

Consumers are clearly interested in the convenience of online grocery, and we believe that the market is migrating to fast service. Micro-fulfillment allows retail operators to serve that consumer need – efficiently and at a low,profitable cost.

While online grocery pricing is always the retailer’s decision, the cost of the micro-fulfillment center is so efficient that it enables retailers to sell products to online customers without additional markups or fees. When grocers in France started selling online at “same price,no fees,” the market went crazy. Consumers reacted enthusiastically, driving a high penetration of the service.

We think it’s the right time because consumer demand for fast service and convenience is increasing, and this is a way to satisfy that demand profitably.

From a business metrics perspective, how will your technology improve profitability performance?

Let’s start with the impact on investment.  Keep in mind we’re talking about installing the automation in less than 10,000 square feet of under-utilized space in the store, and that each unit has the capacity to handle $30 million in orders per year per location.  In terms of asset productivity, return on investment is fast – less than one year for retailers. We estimate that:

• Building a typical new supermarket requires a one-time investment of 60 cents in assets for every dollar of annual sales.
• For our ecosystem, the cost of automation is 10cents for every dollar of annual sales, and the overall installed cost, including renovation, never exceeds15 cents.

This means the investment needed is only a fraction of the investment required to generate the same amount of sales within the store.

In terms of the impact on cost of operations, the economics of the micro-fulfillment center are better than manual picking when orders exceed 50 per day.

• The typical supermarket experiences a “cost to serve” of 23% to 25%.
• The total “cost to serve” for a manual picking operation at store level is typically 40%
• For the automated micro-fulfillment center, the total “cost to serve” is 12% – half that of the supermarket.
• Finally, inventory turns are 3 times faster in the automated micro-fulfillment center (vs the store) which dramatically increases the return on investment.

Thinking about speed to market, our solution offers two ways retailers can accelerate the roll out of this service to the greatest market coverage, beyond just pickup and delivery options from one store.

• The first way has to do with the establishment and operation of a “hub and spoke” logistics system where 1 unit can support 8 to 10 sister stores located within a two-hour drive of the hub store.
• The other involves putting together a network of third-party outlets – convenience stores, drugstores, etc., that are ready to instal llockers on behalf of a food retailer.

All of this is made possible with special delivery totes that maintain temperature for 24 hours, so that either dedicated or crowd-sourced transportation works well.

What makes this application of automation and robotics unique and different?

Takeoff’s hyper-local micro-fulfilment system isn’t a project or a pilot, it’s a product – and a product has to be reliable, repeatable, and scalable.

In August2017, we formed a partnership with Knapp to supply the hardware automation portion of our end-to-end technology solution. Knapp is a global leader in material handling, automation, and robotics. To that technology, we added a big layer of intelligence to ensure it accommodates the unique requirements of grocery. This partnership provides two advantages that are important to operators.

• Reliability: Knapp has produced technologically advanced equipment for many years,and their record of reliability is extremely strong. No retailer can afford to sell a customer a service that works only 80% of the time.
• Scalability: Knapp has the capacity to meet demand. No retailer’s roll out will be limited by the capacity to produce thesesystems. In fact, our current contracts project installing more than one a week– and that’s based on retailer demand, not production capacity.  We could do a lot more if needed.

What’s ahead for Takeoff Technologies?

We will open our first ever automated supermarket in October with one of our U.S. grocery retail partners, with several other sites to follow. We are also working with several large grocery chains with plans to deploy the system at dozens of sites in the next two years, and we have the capacity to meet a strong demand for micro-fulfillment centers.

ABOUT TAKEOFF'S LEADERSHIP

José Vicente Aguerrevere is Co-founder and CEO of Takeoff Technologies,Inc. He is a serial entrepreneur with a passion for retail and disruptive business models. He is also the Co-Founder, Chairman and former CEO of Dia Dia Practimercados, an innovative grocery retail business chain in South America. José Vicente holds an MBA from Harvard Business School, Baker Scholar.

Max Pedró is Co-founder and President of Takeoff Technologies, Inc. He is an eCommerce and Financial Services entrepreneur and executive with a strong track record of transforming industries, re-imagining retail, and delighting customers. Before founding Takeoff Technologies, Max served as Vice President of Financial Services for Walmart Stores in Bentonville, Arkansas.  Max holds an MBA from Harvard Business School,Baker Scholar.

If you are interested in speaking with Takeoff or wish to learn more about how Takeoff can help you to drive greater profitability in online grocery, please email info@takeoff.com .

Editor's note: Thanks to the team at Takeoff for sponsoring this Spotlight blog interview, in which our questions are designed to show how retailers can benefit from using new technologies to meet the needs of today’s shoppers and drive profitability.