According to the recent data shared by the largest retailer Kroger. They have announced the opening of two intersecting facilities to expand access to automated fulfilment centres. Kroger is betting that its automated execution centres, the hub-and-spoke model will gain a competitive advantage in Florida. But the betting required significant upfront investment.
While Kroger estimations it will spend $100 million this year on original outlays obligatory to set up its automated facilities. This is in the calculation of the cost of opening two new facilities. The structure cost of the Jacksonville facility alone was $205,000, according to city records.
The grocer uses technology from Ocado to automate its fulfilment centres. The automation includes more than 1,000 robots equipped with artificial intelligence, helping to pick orders from 21 levels of boxes before they are loaded onto either a delivery vehicle or truck. Kroger and Ocado demonstrated the technology earlier this year. Saying a “unit” of robots could help prepare about 60 orders in just three minutes, Grocery Dive reported in April.
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McMullen reminded investors that Kroger is “very, very early in the process” of leveraging Ocado’s technology during last week’s earnings call. The grocer plans to open 11 fulfilment centres by the end of 2022 and the Groveland facility is Ocado’s second powered facility to date. (Kroger is already in the process of opening its next facility in the Washington, D.C. area, the costs of which are part of the $100 million directives.)
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Furthermore, most of the costs in year one will be pretty much those fixed costs,” Gary Millership, Kroger’s senior vice president and chief financial officer, said on the earnings call last week. “The main takeaway here is basically the way we look at it, with one shed equaling 20 stores’ worth of sales.” Gabriel Arriaga, Kroger’s senior vice president of the supply chain, said during Investor Day in March. “Each of these sheds requires only 60% of the capital and only 60% of the labour.”