Grocery Gateway is more than just groceries

Probably the most devastated sector in e-fulfillment is grocery. But Grocery Gateway stands tall by leveraging its broken-case handling and delivery capabilities to add a 3PL component to its online grocery business.

-- Modern Materials Handling, 5/15/2002

When the bell rang on the final round of the dot-com bubble, very few Internet grocers were left standing. Most simply closed their doors, chalking up what had been a grand experiment in the way we shop for our daily bread.

Many of those that did survive were taken over by established brick and mortar grocers and now act as their online presence. A very few, however, have made the model succeed – with some modifications.

Grocery Gateway is one of the Internet success stories. The company began serving Toronto-area customers in 1999 as one of the best capitalized of the online grocers. Like everyone else, it soon discovered problems with the pure play dot-com model, realizing that the demand does not come fast enough to meet the invested asset base. It since has changed its strategy and now expects to turn a profit this year.

“We do not now consider ourselves a dot-com company,” says Claude Germain, chief operating officer. “While we use the Internet for processing, we consider ourselves a third party provider. What we do is execute superior logistics services.”

While expanding its horizons, Grocery Gateway continues steady growth in its core grocery business, taking in $5-million its first year, $28-million in 2000, and $50-million last year. It now has 142,000 regular customers in Toronto, making it the most highly penetrated online grocer in North America.

To grow further it was necessary, however, to become more than a grocer. Germain and his staff defined the company’s four core capabilities – technology, customer service, direct delivery capability, and broken case picking expertise. It is these last two that Grocery Gateway chose to leverage for growth.

The company has begun to offer third-party logistics (3PL) services at its 280,000 square-foot facility in Toronto. Staples Business Depot, the Canadian arm to US-based Staples, is its largest client. Furniture, file cabinets, and other office products are housed in the facility and delivered on Staples-owned trucks to its customers.

Grocery Gateway is also extending its 3PL capability nationwide. It owns a Montreal distribution facility and leases space elsewhere. Currently, the company is making 7,500 deliveries daily – 6,000 are parcel and 3PL and 1,600 are grocery only.

The next step, according to Germain, is to begin picking groceries and 3PL client products simultaneously and then using Grocery Gateway’s efficient fleet of trucks for delivery of both.

“We are building the residential supply chain,” he says.

The sophisticated materials handling systems at Grocery Gateway make this possible, just as overall handling costs have been reduced to make the company a competitive alternative to area brick and mortar grocers.

“We built out materials handling systems to create a good cost position for our distribution model,” explains Germain. “We didn’t want the technology to dictate the processes, we wanted our demand to dictate how we do things here.”

Groceries are processed in three distinct temperature zones. Dry goods (known there as ambient products) are stored in flow racks and shelving. An efficient design places reserve storage items in pallet racks above the flow racks used to pick the fast moving stock keeping units (SKUs).

Refrigerated items, such as produce, meats, and milk, are kept in a large cooler area. The facility also has a huge freezer containing flow racks and some 1,200 SKUs. Pick-to-light technology (Real Time Solutions-FKI Logistex, 510-985-6300, www.picktolight.com) is used to select the fastest-moving items in all areas, including the freezer. Radio frequency systems direct picking in the medium and slow moving areas. Both technologies are very effective and reliable in these harsh temperature extremes.

Some 50,000 grocery items are picked daily at Grocery Gateway, with the average order totally $140 Canadian. The top 400 SKUs are picked to order. Workers simply select these common staples into individual totes that are then sent directly to the dock according to truck route.

Medium and slow movers are batch picked. Each worker selects items for four batch totes at once. These are then sent to a put-to-light station for deconsolidation into individual orders. Each of the 16 put-to light-stations are filled with 16 individual order totes. The batch totes are brought from the pick areas and each item is removed from them and scanned. Lights illuminate next to the order tote requiring that SKU. Altogether, 164 orders can be completed in each wave. Typically, ten waves are run daily to accommodate the facility’s online customers.

The system is extremely efficient, with picking accuracy at 99.9%. It is also important in the on-line grocery business to deliver the right items on time to the customer. Currently 97% of deliveries are on time.

The products stored for third-party clients are housed in pallet racks within a designated secure area. Loads are pulled and taken by lift truck or pallet jack directly to the dock for loading onto the client’s fleet.

Eventually, Grocery Gateway see advantages in co-mingling grocery stock with that of its clients. Picking then can be completed simultaneously and placed on the trucks together. Crossdocked parcels will also be added onto the trucks.

“Ultimately, if we have room in the grocery vehicle, we will deliver parcels along with the groceries and also to pick up. We hope to do that within the next six months,” explains Germain.

If these goals can be met, then Grocery Gateway is well on its way to achieving the distribution efficiencies originally envisioned for the E-commerce channel.