Dive Brief:
- Hy-Vee plans to build a 137,000-square-foot e-commerce fulfillment center and industrial kitchen in Kansas City, MO, according to The Kansas City Star.
- The new facility will support the retailer’s Aisles Online e-commerce platform in Kansas City, and will supply the city’s stores with prepared meals.
- The facility, whose former tenants included a brewer and an electric supply company, will cost an estimated $29 million to outfit. It will employ 127 employees to start.
Dive Insight:
When Hy-Vee launched its Aisles Online ordering and delivery program two years ago, it made sure to highlight its “personal shoppers” who would fulfill every order in-store. The idea deftly connected the online and store experiences and reassured skeptical customers that someone would carefully select and prepare their orders at the same place they were used to shopping.
Most retailers, whether they run their e-commerce platform themselves or use a third-party provider like Instacart, follow a similar format where their stores serve as the warehouses for online order fulfillment. As e-commerce traffic grows, however, this model begins to wear on the store experience. Workers crowd the aisles and out-of-stocks rise as in-demand products get scooped up.
At some point, retailers need to move their e-commerce fulfillment out of stores and into dedicated facilities. That appears to be what Hy-Vee is doing here. An e-commerce warehouse would allow the company to stock more fast-moving products. It could also speed up home delivery by optimizing product placement for quick picking and packing. The efficiencies multiply in a place like Kansas City, where Hy-Vee has a high density of stores.
Cavernous warehouses aren’t the only facilities that can meet e-commerce demand. In England, where online shopping has significantly more market share than it does in the U.S., grocers frequently convert stores into mini fulfillment centers, or “dark stores.” This more localized approach hasn’t been utilized much in America, but it could help retailers become more responsive to individual markets.
When should retailers move beyond stores to fulfill online orders? One industry expert, in an interview with Food Dive, estimated that e-commerce sales should comprise around 10% of total sales. Judging by online grocery’s current 2% penetration, retailers still have a long way to go here. But some, like Hy-Vee, may want to get ahead of the issue and not risk jeopardizing the store experience — even a little bit.
