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Background Information

The grocery industry is one of the most challenging industries from a logistics perspective.  Food is the product type that humans consume the most of which is why grocery distributors ship high cubic volumes of merchandise to retail stores with frequent deliveries to ensure product freshness.  Grocery distribution center operations are amongst the most labor intensive of any industry and the work is physically demanding with associates handling heavy cases and working at high speeds throughout the day in ambient, refrigerated and freezer environments. 

In North America, most grocery retailers and wholesalers are lucky to make a 2% net margin after it’s all said and done - that’s two cents on the dollar if you’re good because many survive on less.  Add it all up and one might suppose that automation in grocery distribution centers must be fairly common, but nothing could be further from the truth.  The vast majority of North American grocery distribution centers are conventional operations meaning that people do the work, primarily by moving merchandise with manual handling and the use of pallet jacks and forklift trucks.  This article takes a look at the grocery companies that have made bold initiatives to automate their distribution centers and we attempt to explain why the industry as a whole remains characterized by conventional warehousing strategies.

Automation in the Grocery Industry - A Look Back in Time

In the beginning, the first automatic carton selection system was the SI Ordermatic manufactured by S.I. Systems of Easton, PA. The Ordermatic was a massive machine that was used, primarily in large grocery distribution centers, to automatically and precisely select full cases instead of having people doing order selection.   In the late 1970’s and 1980’s, grocery companies were eager to automate as a labor strategy resulting from increasing levels of organized labor and high inflation rates causing significant increases in labor wages and benefit expenses.

• In the 1980’s, Giant Food deployed a 662 feet long Ordermatic machine in their Landover, MD distribution center.  The machine automatically picked dry grocery cases for 150 stores at a rate of 5,000 cases per hour from among the 15,000 pallets stored in the system.  A computer system would instruct gate release mechanisms (set up at the SKU level) to dispense full cases down short ramps and onto three levels of conveyor belts.  At the time, it was a revolutionary and bold approach to replacing approximately 26 order selectors from doing the same work conventionally.  It was one of the last Ordermatics to be unplugged in the U.S. 
• In 1984, Fleming Cos. took a $4 Million write-off when it removed its SI Ordermatic from its 478,000 sq. ft. Philadelphia distribution center.  The depot was converted to a conventional operation because the automated system ‘had not proved to be as productive as originally anticipated.
• Spartan Stores used a 30’ high SI Ordermatic (known as Big Blue) at their Grand Rapids dry grocery distribution center until it was discontinued in 1987. 

Unfortunately, the Ordermatic was a first generation technology that suffered a setback due to the general degradation of case-packaging in the food industry. The system was not effective at handling oversized or undersized cases, film-wrapped cases tray pack containers that do not slide easily down the system’s plastic runners, and weak unstable cases.  In addition, the effort required to replenish the Ordermatic’s pick slots was often problematic depending on the methods used to perform replenishment and the quad configuration of the machine.  If pick slots were not replenished on time then the order would be short shipped and the Ordermatic was known for being able to pick product faster than it could be replenished.  In the end, the Ordermatic was never widely deployed because of the reality that it was difficult to realize a reasonable return on investment.

Another system developed by SI Systems is the CARTRAC which is still in use today primarily in manufacturing operations such as automotive assembly operations.  The S.I. CARTRAC method was designed to move pallets of product to the operator rather than having the operator travel the aisles selecting orders.  The CARTRAC concept basically consists of a train of carts that continuously travel through a loop such that operators positioned at pick stations along the track can select their orders without having to travel. After pallets are received, the forklift operator stops the CARTRAC and places the inbound pallet onto an empty cart after removing the empty pallet.  The CARTRAC then proceeds to travel its designated circuit in the warehouse and operators select cases as the pallets pass by.  The CARTRAC concept was deployed in Produce rooms where SKU variety is low and case movement is high with the benefit being the elimination of selector travel time. Unfortunately, the downside is that the system is only as fast as the slowest selector and as a result the CARTRAC system was not a success in the grocery distribution context.

In the 1970’s and 1980’s, most grocery distribution centers were either designed as conventional operations or as mechanized (pick to belt) operations.  The problem with most full case pick to belt operations in the grocery trade was that the net labor savings was minimal as compared to conventional operations meaning that there was nothing but additional expense to pay for maintaining and operating the conveyor equipment - a steep price tag that led to many conveyor systems being ripped out after only seven years of usage.  Quite simply, if an operator picks 400 cases/hour to a belt and another operator removes cases and stacks pallets at a rate of 300 cases per hour then the net throughput rate is 171 cases/hour.  A selector who conventionally picks dry grocery cases to a double pallet jack in a typical retail grocery distribution center can work at a pace of 175 - 200 cases per hour so the cost benefit equation for mechanized picking is not obvious, especially when faced with a $1 Million system maintenance expense to replace worn out equipment.

Automation in the 1990’s and Beyond

By the early 1990’s, the trend towards automation in the grocery industry slowed down as inflation rates normalized and the fears of a runaway labor crisis of the 1980’s subsided.  During the 1990’s, few grocery companies invested in automation solutions and those that did were inclined to invest into automated storage and retrieval systems (AS/RS).  The early generations of AS/RS machines were much slower and more expensive than the machines that are currently available to the market.  In the early years, investing in AS/RS machines required a much greater leap of faith because the biggest fear was that the machines could not move the pallets fast enough to support picking operations.

During the 1990’s, man of the AS/RS systems deployed were put into freezer operations whereby the AS/RS machines performed all pallet moves such as putaway, letdown and full pallet picks.  Initial throughput rates for these machines were in the range of 10 pallets per hour in and out so they were not practical solutions for faster velocity environments.  Nowadays, throughput rates are upwards of 40 pallet moves per hour which has essentially mitigated this issue.  In the past decade, AS/RS machines have been successfully deployed across all storage environments including Dry Grocery, the Dairy/Deli refrigerated cooler, the Produce rooms, the Fresh Meat room and the Freezer. A few of the Grocery retailers and wholesalers who have deployed AS/RS systems follow:

• Wegman’s Food Markets has implemented AS/RS machines supported by mechanized order selection in their Dairy/Deli cooler and Freezer, and in the Fresh Meat depot in their Rochester, NY campus of facilities. 
• Associated Food Stores deployed a 4 crane AS/RS within a 52,000 square feet expansion of their Dairy/Deli cooler in Farr West, Utah.  What is interesting about this installation is that a 2-level rack-supported mezzanine is used to enable pick facings for high variety Dairy/Deli SKUs to be picked at floor level across two levels with AS/RS miniload machine providing replenishment support for both levels.
• Fareway Foods is a small grocery retailer with stores in Iowa and Nebraska.  The company built their first distribution center in Boone, IA, a $32 Million refrigerated facility with 257,000 square feet that includes an 8-level AS/RS system.  What is important about this installation is that Fareway Foods is a relatively small supermarket retailer that had the courage to make the investment into distribution automation when much larger companies have not.
• H.E.B. has deployed AS/RS machines across multiple distribution centers including its 60’ high 780,000 square foot HBC/GM/Slow Moving Grocery distribution center in San Marcos, TX.  H.E.B. has also deployed a rack supported freezer expansion from HK Systems (acquired by Dematic in 2010) in their San Antonio campus of facilities.
• Stop and Shop has deployed 77 HK3000 (Dematic - HK Systems) rotating fork AS/RS machines in its 35’ high 1.3 Million Square Feet distribution center across its Dry Grocery, Produce, Fresh Meat and Dairy/Deli coolers in Freetown, MA.  What is unique about this facility is that all of the cranes are deployed in a single deep racking environment whereby man and machine work in very close proximity; the AS/RS literally passes human hands within a matter of inches (most AS/RS applications are deployed in 2+ deep pallet rack storage systems).
• Publix Super Markets deployed three AS/RS systems between 1994 and 2005 in its freezer rooms in Deerfield Beach, FL (supported by mechanized pick to belt conveyors) and Lawrenceville, GA (2-level manual pick) and their Lawrenceville, GA slow moving Dry Grocery operation (mezzanine pick to belt with sortation).  In February, 2012, Publix announced that Swisslog has been commissioned to design and implement automation for a new 1,000,000 sq. ft. distribution center being constructed in Orlando expected to open in 2015.  The project will involve the latest AS/RS and order fulfilment technology deployment in the freezer facility.
• C & S Wholesale has invested significantly into automation in its 1.5 Million Square Feet York, PA ES3 LLC Mixing Center that services distributors throughout the Northeast with pallets, layers and cases.  Their new automated case selection and automated gantry robot palletization system was developed and implemented with SSI Schaefer USA (SCP - Schaefer Case Picking) which went live in 2010-2011.  C & S Wholesale is also reportedly developing its own proprietary automated pick case technology which is underway in two dry grocery facilities that have yet to go live.
• Since 2000, Walmart has worked with Swisslog to automate a number of its Chilled and Frozen distribution centers in Arcadia, FL; Ochelata, OK; Pottsville, PA; New Caney, TX; Cheyenne, WY; and San Martin Obispo, Mexico; amongst others.

Perhaps the most important automation innovation to arrive on North American soil as far as grocery distribution is concerned is an automated full case selection system developed and integrated by Witron.  In Europe, Witron has already successfully designed and implemented its automation solutions for split case distribution centers with companies like SPAR, Edeka, Migros, Mercadona, Sainsbury’s, Delhaize and others.  The business case for automation in Europe has always been stronger than North America because of land constraints, higher labor costs and labor availability issues.  In North America, these issues are less prevalent making it more difficult to economically justify the investment into fully automated distribution centers.  Having said this, a number of Witron facilities have now been successfully been deployed in North America (and they are very impressive) including:

• In 2002, The Kroger Company went live with Witron’s Dynamic Picking System (DPS) for slow moving HBC/GM piece pick operations in its 725,000 sq. ft. Cleveland, TN Peyton’s Southeast distribution center.  By 2009, Kroger rolled out its second Witron DPS system in its 1.2 Million sq. ft. Blufton, IN Peyton’s Northern distribution center. 
• In 2001, The Kroger Company started working with Witron to design the first automated full case picking system which was successfully implemented in three phases starting in 2004 in its 1.1 Million sq. ft. distribution center in Tolleson, AZ.  The systems comprises of 10 AS/RS cranes to manage 21,000 pallets of reserve inventory; 32 mini-load AS/RS OPM (Order Picking Machine) devices that manage 400,000 tray positions to support automated picking; and automated transfer vehicles that deliver pallets from systems induction to the AS/RS crane system.  16 Witron COMs (Case Order Machines) automatically stack cases onto pallets in a store friendly sequence with highly sophisticated Witron-developed robotic pallet-building software and machinery. The system ships an average of 110,000 cases/day with a peak capacity of 160,000 cases/day.  This was truly a pioneering game-changing historically important event in automated distribution.
• In 2006, Kroger and Witron implemented the OPM full case automation system with 16 COMs at the 850,000 sq. ft. King Sooper’s distribution center in Aurora, CO.  In 2009, the Ralphs division of Kroger started shipping Dry Grocery cases from its new automated full case Witron system with 20 COMs from its 552,000 sq. ft. distribution center in Paramount, CA.  Construction is now underway for the first fully automated case selection facility with 15 COMs for Perishables and Frozen Food in Kroger’s (Ralphs) 80’ high Compton, CA distribution center scheduled for sometime in 2011. 
• In 2006, SuperValu and Witron implemented the OPM full case automated distribution system within an existing retrofit  facility (a 579,000 sq. ft. Hopkins, MN distribution center) and also the Witron DPS (Dynamic Picking System) for split case picking in a 1.25 Million sq. ft. Albertson’s Brea, CA distribution center. The latest distribution center to be retrofit for Witron’s automated full case selection for Dry Grocery is in the former Albertsons/ACME facility which is 1.7 Million square feet in Lancaster, PA.
• Sobey’s Inc. went live in 2009 with a Witron OPM automated full case 510,000 sq. ft. Dry Grocery distribution center (65 feet high) in Vaughan, Ontario, Canada. The operation currently averages about 100 - 125,000 cases/day with 16 COMs and is capable of shipping up to 320,000 cases/day. This facility is one of the most automated and technologically advanced of its kind and the good people at Sobey’s have been kind enough to share their experience with an excellent video that is available here.  In 2013, Sobey’s intends to deploy a second fully automated 470,000 sq. ft. Witron Dry Grocery distribution center of in Terrebonne, Quebec north of Montreal.  The new automated distribution center will enable the closure of a 100,000 sq. ft. warehouse in Riviere du Loup and the conversion of a 120,000 sq. ft. Dry Grocery warehouse in Rouyn-Noranda into a cross dock operation. 
• Clearly Sobey’s significant capital investments into distribution center automation provide a clear message to the market place.  Automation has become a fundamental strategic platform for the company to support future growth with less reliance on labor and with a lower overall long term cost structure.  The timing of this message is important as the Canadian Grocery industry is about to heat up to unprecedented levels as Sobey’s, Loblaw’s and Metro Richelieu an face increasing threat for market share from Walmart and eventually from Target.  Target is a newcomer to the market resulting from the 2011 acquisition of Zellers store leases.  While Zellers is not considered to be a grocery supermarket retailer, the market is anticipating that Target will eventually roll out its Superstore concept in Canada similar to how Walmart has expanded the number of Supercenters selling groceries.
• Target Corporation announced in November, 2011 that the company plans to construct a new 360,000 sq. ft. perishables and frozen food distribution center in Denton, TX.  The new facility will service 235 stores in Texas and seven other states that are currently serviced by SuperValu (Fort Worth).  Permits issued by the City of Denton to Witron Logistik indicate that this may well be the next North American fully automated case picking system from Wiitron.  The facility, to be located at 3952 Corbin Road, is scheduled to open in March, 2013 and is expected to ship 577,000 cases/week.  The distribution center will employ 140 people which means the expected throughput rate is 140 cases per man-hour (includes all direct and indirect labor).  The comparable throughput rate for a conventional perishables distribution center servicing retail store orders is typically between 60 - 90 cases per man-hour (includes all direct and indirect labor) which leads us to believe that this facility will be highly automated.

• In 2007, Denner is a leading Swiss food and beverage discounter that enhanced their distribution center by deploying a Swisslog solution called “CaddyPick” into an existing expanded facility in Mägenwil, Switzerland. Now there are many more automated grocery distribution centers in Europe than we mention in this white paper, but this one is unique so it’s worth mentioning here. The system combines AS/RS for pallet storage and retrieval of 19,300 pallets with a unique semi-automated picking approach that can only be described as an overhead monorail system that transports trolley carriers through pick zones whereby the operator picks cases to the trolley which transports the store’s pallet or roll cage. A video of this operation can be seen if you click here.
• In April, 2012, the supermarket retailer Asda contracted with Swisslog to deploy the largest AutoStore installation to date over two phases at its 92,900 m² (1,000,000 sq. ft.) Lutterworth, Leicestershire, U.K. depot.  The system will be comprised of 70,000 storage bins and 160 robots, linking eight ergonomic decant stations with a dozen goods-to-man picking ports.  Asda is the 2nd largest supermarket chain in the UK (17.9% market share) and is owned by Walmart. Asda services 550 stores across the UK with more than 35,000 products including groceries, clothing, household goods and electronics.  AutoStore is a technology that is used to automate the storage and retrieval of split case products.

This article would be remiss if we did not mention at least 4 other automation innovations that have emerged in the Grocery and Foodservice industries. 

1. The first story of interest is the Nedcon / Dynamic Logistics Systems Order Release Module that began development in 1999 for Albert Heijn in the Netherlands and for ICA in Sweden.  The Albert Heijn installation has two modules live in Dry Grocery that automatically select 900 fast velocity SKUs moving up to 6,000 cases/hour from a series of patented conveyor-based pick locations that span 7 vertical levels within each module.  ICA’s system consists of 3 modules with 1800 lanes shipping Dry grocery and Fresh Perishables merchandise. 
2. TGW Systems (TGW GmbH is from Austria) is in the process of moving its skill sets in equipment manufacturing to turnkey systems integration.  The comp[any is actively developing an automated case pick solution which will be of interest to the grocery industry.  A good video of this solution working in a lab environment in Wels, Austria is available here.
3. SSI Schäefer has developed the Schäefer Case Picking (SCP) system which provides a fully automated approach to handling grocery merchandise from receiving through to shipping that can be deployed in both the Dry Grocery and Frozen food environments.  A video of this system in action can be seen here. Another video depicting the automated Migros freezer operation in Switzerland can be seen here.
4. Lastly,  Dematic - HK Systems has developed a a wide range of unique automation solutions specifically for automating the handling of slow moving dry grocery and frozen food SKUs.  So far, Sysco has rolled out their semi-automated approach across 10+ foodservice distribution centers in the U.S.  In short, the system is managed by mini-load ASRS cranes that dynamically move standard trays throughout a storage module so that the pick line at floor level is reset with the release of every order wave.  The design is based on the reality that out of a population of say 5,000 slow velocity Dry Grocery SKUs, only 1,000 SKUs will be needed on any given order wave.  The mini-load cranes set up the pick line in advance of every wave and then operators batch pick orders conventionally at floor level.  The approach is a cost effective way of eliminating vertical cherry picking from very narrow aisles which is a very costly and unproductive approach to handling slow moving SKUs in the foodservice and grocery industries. More information is available on this subject here.

Looking Ahead to the Future

It appears that North American grocery companies are more interested than ever to understand the business case for automation.  The financial case for automation may not necessarily be readily apparent for many companies because the high capital investment requirements are generally returned over a longer time period.  The motivation for automation is now being driven by labor-related issues such as: the anticipated forthcoming labor shortage; the very real threat of organized labor shutting down distribution operations such as the 2003 strike that involved 70,000 union workers that hurt the Southern California market (particularly Albertsons, Ralphs, and Vons); and as an overall competitive advantage predicated on shipping more cases with significantly less labor requirements.

Today’s automation technologies are faster, far more reliable and technologically advanced than previous generations.  There are pros and cons to automation the companies need to be aware of before considering this option for their business:

PROS (Benefits of Automation or Reasons to Automate)

• Footprint constraints - a land locked site has limited space for expansion therefore constructing a high bay automated facility is a viable option.
• Refrigeration energy savings (“green building”).
• High volume of throughput whereby automation enables a significant labor reduction.
• Depreciation savings enables tax shield cash flows that help justify the investment (such may not be the case in ESOP companies for example).
• The need for consistency and accuracy is compelling.
• Growth in case shipment volume is expected.

 

CONS (Disadvantages of Automation or Reasons Not to Automate)

• A high requirement for flexibility to support a dynamically changing environment - automation systems work best in consistent predictable environments.
• High constraints placed on capital investment requirements - automation requires a higher upfront cost than a conventional facility.
• Design time constraints - automated systems typically take longer to design and deploy because each one is essentially a custom design effort.
• Potential for unexpected labor requirements are not anticipated such as the additional maintenance staff that is required for each active shift of operation in case a crane goes down for example.

Marc Wulfraat is the President of MWPVL International Inc.  He can be reached at 514) 482-3572 Extension 100 or by clicking here.  MWPVL International provides consulting services to grocery distribution companies seeking to evaluate automation solutions. Our services include: distribution network strategy; distribution center design; material handling and automation design;  supply chain technology consulting; product sourcing; 3PL Outsourcing; and purchasing; transportation consulting; and operational assessments.