Grocery Industry: The Future of Automation
July 29, 2024
Note: We reveal investment insights through the quotes of top business leaders.
Key Takeaways
- Walmart is significantly advancing automation in its distribution and fulfillment centers, enhancing efficiency and capacity.
- Technological advancements in AI and automation are driving operational efficiencies and necessitating workforce reskilling.
- Major grocery players are leveraging technology to enhance customer experience through personalized service and improved processes.
- Investments in modernizing distribution and long-term supplier agreements are key strategies for improving supply chain efficiency.
- Automation is leading to reduced delivery costs and strategic capital allocation in high-return areas like eCommerce and supply chain automation.
Current Automation Trends in Grocery
Walmart is significantly advancing automation in its distribution and fulfillment centers, enhancing efficiency and capacity. The company is also integrating automation into its entire network and Sam's Clubs, including customer-facing technologies, to optimize operations and unlock new opportunities in third-party fulfillment.
"Starting from a demand forecast all the way through to the automation that you've seen us put into distribution centers and fulfillment centers and perishable, there's an opportunity to have that river of merchandise, which is more than 100,000,000,000 items a year, be closer to optimization." --- (WMT, status update, 2024/06/07)
"We talk a lot about some of the supply chain automation that we've done. If you take the automation that we've done in like one of our fulfillment centers, We have roughly twice the capacity and twice the throughput that we had prior to that automation to that vertical storage that we have there." --- (WMT, conference, 2024/06/25)
"that investors will still have still yet to see. Maybe to double click on that a little bit, 3P growth and getting Walmart fulfillment, how is getting the automation right help getting 3P fulfillment just unlock the opportunity to do that for folks?" --- (WMT, conference, 2024/06/12)
"We're really pleased with the progress that we're seeing there, excited to have our full network converted to automation at some point in time." --- (WMT, conference, 2024/06/12)
"And there are certain things that we're doing within our Sam's Clubs that I think are really important related to the automation, not just automation that we're doing in our stores, but putting automation in the hands of the customer." --- (WMT, conference, 2024/06/12)
Technological Advancements in Grocery Automation
Technological advancements in grocery automation are being driven by AI and automation, which are enhancing operational efficiencies and enabling innovation in key growth areas such as hybrid cloud and digital transformation. This shift necessitates reskilling a significant portion of the workforce, particularly in entry-level positions.
"According to a global study conducted by IBM Institute of Business Value, executives estimate that implementing AI and automation will require 40% of their workforce to reskill over the next three years, mostly those in entry-level positions." --- (IBM, press release, 2024/07/22)
"This sophisticated AI platform, celebrated for its machine learning and deep learning capabilities, is the culmination of Avant's efforts to deliver unprecedented and cost-effective compute infrastructure that unlocks the full potential of AI and ushers in a new era of technological advancement." --- (GOOG, press release, 2024/06/28)
"are driving the operational efficiencies of productivity so we could create the investment flexibility in driving innovation in core areas of growth that we still see very strong, hybrid cloud, Gen AI, digital transformation, automation, application modernization and that's where our focus area is." --- (IBM, conference, 2024/05/20)
Enhancing Customer Experience
Kroger, Google, Amazon, Walmart, and Costco are all leveraging technology and automation to enhance customer experience, focusing on efficiency, personalized service, and improved processes.
"We are focused on enhancing our pillars and delivering an exceptional customer experience to accelerate this flywheel effect." --- (KR, sec filing, 2024/Q1)
"If you take a use case like improving the customer service experience, it is part of it which is driving efficiencies, and you can look at it from a cost standpoint, but you could also be overall improving the experience, improving conversion, driving the funnel better." --- (GOOG, earning call, 2024/Q2)
"We seek to invest efficiently in numerous areas of technology and infrastructure so we may continue to enhance the customer experience and improve our process efficiency through rapid technology developments, while operating at an ever increasing scale." --- (AMZN, sec filing, 2024/Q1)
"What we want to make sure first is that the customer experience is always the best customer. So as we work on things like search and the catalog, we've used artificial intelligence and Gen AI to improve our catalog quality, which helps us give to a customer exactly what they search for." --- (WMT, event transcript, 2024/06/07)
"But we do know that there's definitely some improvements we could have that would enhance the member experience." --- (COST, earning call, 2024/Q3)
Improving Supply Chain Efficiency
Investments in modernizing distribution, regionalization efforts, and long-term supplier agreements are key strategies being employed by major grocery industry players like Target, Walmart, and Amazon to enhance supply chain efficiency. These initiatives focus on improving last-mile delivery, inventory management, and overall supply chain resilience.
"We discussed the supply chain investments we're making to modernize how we distribute merchandise, including the rollout of additional sortation centers to increase the speed and efficiency of our last-mile delivery." --- (TGT, earning call, 2025/Q1)
"So, when you look at supply chain, the most efficient mile in the supply chain is from manufacturer to the DC, which we call the first mile." --- (WMT, conference, 2024/06/11)
"The largest drivers of this improvement in free cash flow are increased operating income and moderated levels of capital investment. We're also seeing improvements in working capital, notably in inventory efficiency driven by our regionalization efforts." --- (AMZN, event transcript, 2024/05/22)
"A critical factor supporting our reliability is the upstream supply chain where we've been seeing improvements as well." --- (TGT, earning call, 2025/Q1)
"And so we're really proud of our position from a supply chain standpoint. We worked diligently to provide resilience across the food supply chain over the past couple of years.I'm working on a number of initiatives, Doug, things like long term agreements with our suppliers to make sure that they can make the investments they need to secure future food supply, working diligently in things like sustainability across the key stakeholder groups to equip farmers to make sure that our food supply is steady for years to come." --- (WMT, event transcript, 2024/06/05)
Cost Implications of Automation
Automation has led to reduced delivery costs at Walmart, reflecting immediate cost benefits. Additionally, Walmart's strategic capital allocation prioritizes high-return areas like eCommerce and supply chain automation, indicating a significant investment in automation to drive future cost efficiencies.
"And some of the improvements that we've seen already and like our delivery costs is related to the automation that we've already put in place." --- (WMT, conference, 2024/06/25)
"As of April 30, 2024 2023 2022 Certain Balance Sheet Data Total assets $ 254,054 $ 245,053 $ 246,142 Accumulated depreciation and amortization 118,518 113,164 104,295 Accounts payable 56,071 54,268 52,926 Accrued liabilities 24,092 27,527 21,061 Strategic Capital Allocation Our strategy includes allocating the majority of our capital to higher-return areas focused on automation such as eCommerce, supply chain and store and club investments." --- (WMT, sec filing, 2025/Q1)
Future Outlook and Strategic Insights
Kroger's strategic investments and cost-saving initiatives are aimed at driving future growth and administrative efficiencies. Amazon is focusing on specific investments that impact their short-term outlook, indicating a dual approach to immediate and long-term strategic planning in grocery industry automation.
"This increase resulted primarily from planned investments in associates, costs related to strategic investments that are expected to drive future growth and the effect of our terminated agreement with Express Scripts, partially offset by broad-based cost savings initiatives that drive administrative efficiencies, store productivity and sourcing cost reductions and lower incentive plan costs." --- (KR, sec filing, 2023/Q4)
"I think we're at the stage now where we're doing both at the same time continually, so we are more apt to talk about the specific investments that we're making and how that might impact our short-term outlook." --- (AMZN, earning call, 2024/Q1)