Kroger is opening automated warehouses around the country to build a larger and more profitable online grocery business.
GROVELAND, Fla.– Inside of a giant warehouse, several hundred robots and Kroger employees are busy preparing online grocery orders.
The country’s largest supermarket operator has opened the automated facilities, called sheds, in Ohio and Florida — and more are on the way. The sheds are the result of Kroger’s deal with British online grocer Ocado to use technology to quickly fill customers’ e-commerce orders and do that in a more profitable way.
One shed is in Monroe, Ohio — close to Kroger’s Cincinnati headquarters — and the other is in Groveland, Florida — a fast-growing city about 30 miles west of Orlando. CNBC had a chance to look inside the facility as it reported on how the grocer is trying to build an online grocery delivery business in Florida, where it has only one store.
For Kroger, the sheds are a huge investment. Each one costs a minimum of $55 million to build. It’s a risky bet, especially when one considers it has to share a portion of each sale with Ocado. To pay off for Kroger, its online business must grow rapidly.
Here’s a closer look at how Kroger is using its Florida shed to get groceries to customers, based on a tour of the facility and interviews with company leaders:
Stocked up and ready to go
Kroger employees put groceries and other goods into plastic totes. Those totes are gobbled up by a grid where robots help retrieve items for customers’ online orders.
Each shed is stocked with about 31,000 different grocery, personal-care and household items. Trucks pull up to industrial-sized, warehouse doors to unload pallets of cereal, soup, vegetables, packs of paper towels and more. They are ferried by forklift to a decant station.
Once there, employees unwrap the pallets and break down the shipping boxes. They scan and sort items of the same type into plastic totes — almost like stocking a giant, high-tech vending machine.
Key pieces of information about each tote are typed into a computer, including the number of items it contains and product expiration dates. The automated system uses the data to monitor inventory levels and flag products that are at risk of going bad or falling short of Kroger’s standards. (For instance, Kroger guarantees 10 days of freshness for milk.)
Meanwhile, another group of employees load delivery totes with blue plastic bags. These containers will be used to collect items for customer orders.
A hive of activity
Kroger Ocado robot delivery system
The engine of each shed is a high-tech grid of roughly 200,000 plastic totes. The totes are stacked on top of one another in rows. Some are full of items that haven’t yet been doled out for a customer, such as loose onions, boxes of Pampers diapers or bags of gummy worms. Others are empty. And a third category is filled with bagged groceries picked out for a customer.
Totes shuffle around like a game of Tetris. From a bird’s-eye view, the grid — or hive — is about the same size as a football field. It is made up of two sides: a chilled side for perishable items and an ambient side for shelf-stable consumer packaged goods and household items.
Totes are color-coded. White totes are “hive totes” that stay in the grid. They get filled and emptied of inventory — but are never used as a delivery receptacle for a customer.
Other smaller totes go inside of those “hive totes.” Red totes hold refrigerated and ambient temperature items. Blue totes are used for frozen items.
Meat goes into a yellow tote. Fruits and vegetables go in a green one. And anything that could contaminate food items, such as deodorant and laundry detergent, goes into an orange tote.
Some groceries get an extra layer of protection. For example, bunches of bananas stay in a cardboard box inside of the tote to minimize the risk they will get squished.
All are gobbled up by the grid-based system, which is made up of conveyer belts and chutes.
The hive remains active nearly round-the-clock. An overnight shift from 9 p.m. to 6 a.m. tends to be the busiest. That’s when employees pick groceries for next-day deliveries. There’s also a day shift from 6 a.m. to 5 p.m. From 5 p.m. to 9 p.m., the grid can be down for any maintenance that’s needed.
At Kroger’s sheds, employees hand-pick pints of ice cream, pizza and more from a large, walk-in freezer. They are packed with dry ice.
Behind the scenes, Ocado’s software powers robots in an elaborate choreography. Robots roughly the size of a dishwasher glide on top of the grid of plastic totes. Each has wheels that allow them to go four directions and a metal, tape measure-like ribbon at each of its four corners.
Almost like a carnival game, the robots can unwind the metal-like tape, hook onto the tote and snatch it into its belly from multiple yards away.
The robots run this intricate storage-and-retrieval system. They move around the totes and come up with best routes to get them to outbound lanes or inbound lanes, so that employees can fill them up with inventory and process customers’ orders.
Frozen items are not part of either grid. Instead, they are kept in a large, walk-in freezer that is kept at minus 10 degrees. Employees hand pick pizzas, pints of ice cream, microwavable dinners and more. Those items get put into foam-lined blue totes along with dry ice to keep them cold on the delivery route.
Picking and packing
Groceries are picked by employees and put into bags inside of plastic totes. The totes are color-coded.
In the middle of the hive, employees stand at pick stations. Some work on the ambient side, which is kept at about 70 degrees. Others pick in an area that resembles the inside of a refrigerator at 34 degrees. Here most employees wear heavy coats and winter hats. On the chilled side, the grid is much smaller — eight totes deep versus 21 deep — since each item that goes into a tote has a much shorter shelf life.
Employees at pick stations have a conveyer belt next to them that serves up totes full of the items that they need to grab for a customer. They stand in front of a counter area that spits out three different totes at a time to fill with customers’ purchases.
Each employee’s computer screen shows which items should go with a customer’s order. A green light also appears above the correct tote and a small screen shows the quantity of the item to add to the bag. They scan items, much like a cashier would at the store.
The software that powers the entire grid helps group together similar orders, such as pairing customers who ordered the same kind of ketchup or yogurt. It also tells the system how to pick, so that fragile items like loaves of bread and cartons of eggs are last.
When an employee is done filling a batch of totes, they press a button and the containers get gobbled back up by the grid.
Employees soak lettuce and comb through clamshells of berries at Kroger’s sheds to make sure they are fresh and high-quality.
Along the way, Kroger has multiple checkpoints to catch moldy fruit, leaking milk or other problems that can leave a bad impression — and potentially, scare away customers. One of those is a backroom where employees soak lettuce, store asparagus stems in water, comb through containers of strawberries and do other kinds of quality checks.
It also has a team of quality assurance employees who monitor the pick stations and do spot checks. Employees at pick stations are also encouraged to flag any items that don’t look or smell right.
On the road
Kroger employs a team of delivery drivers who drop off groceries at customers’ doors. The trucks are temperature-controlled.
When customers’ groceries are done being picked, red and blue totes travel to the end of a conveyer belt to a station for outbound orders. They are spit out in a sequence, so an entire customer order is together — regardless of items’ temperatures. Orders heading to a similar destination are grouped together, too, so they wind up in the same delivery van.
The outbound station is on the chilled side of the facility for quality control.
Totes are loaded into metal frames on wheels and loaded into the back of a temperature-controlled delivery van. Each van has a refrigerated section and a room temperature section to make sure chocolate doesn’t melt and six-packs of beer arrive cold. It can fit up to 80 delivery totes, which could serve between 10 and 25 customers.
To extend the reach of its delivery service, Kroger uses a hub-and-spoke model. It picks and packs orders at the shed, where it has a fleet of delivery vans parked. It has additional delivery vans parked and ready at other locations, too. They pass the totes along, almost like a relay race.
In Florida, it has delivery hubs that are in Jacksonville and Tampa. Across the state, it has a total of 500 delivery drivers. It has nearly 400 more employees who work at its Groveland shed. Each can deliver to a roughly 90-mile radius.
At the door
Kroger’s delivery trucks are temperature controlled. They include a refrigerated compartment that keeps gallons of milk, six-packs of beer and other items chilled.
When delivery drivers arrive to customers’ homes, they unclip the bags from the corners of the tote and carry those bags to the door.
They go over the order with a customer, remind them about potential substitutions if an item was out of stock and review one of Kroger’s perks — points that tally up and can be used for fuel discounts. If a shopper is unhappy with an item, he or she can return it to the delivery driver on the spot and get a refund.
Customers pick a delivery slot that works for their schedule and can opt for contactless delivery. They can order as far as a week in advance or as quick as two hours, depending on their location, said Brandon McBurney, general manager of the Kroger fulfillment network in Florida. Most have been ordering about 24 to 48 hours before when they want their groceries to arrive, he said.