Kraft Heinz's Evolv: Backing Micro-Fulfillment’s Evolution At The Grocery

In eCommerce, and specifically, fulfillment, might the mantra be: Think big, go small? For grocers making the transition to the digital age, micro-fulfillment centers located at the back of the store may solve a myriad of logistics/inventory challenges. Evolv Ventures (the $100 million venture arm of Kraft Heinz) Managing Partner Bill Pescatello tells Karen Webster how a new investment in Israeli startup Fabric can bring automation to the corner store and help speed deliveries.

Much of the transition from physical to digital — and the leap into eCommerce — comes down to fulfillment. In the age of Amazon, fulfillment can help a retailer thrive. However, if it misses the mark (if items are late or don’t arrive at all), the ripple effects can dent customer trust, and firms’ bottom lines.

In an interview with Karen Webster, Bill Pescatello, managing partner at Evolv Ventures, the venture arm of Kraft Heinz, said that micro-fulfillment centers can solve existing pain points of eCommerce, especially within the grocery sector, where making sure the order is right — the right vegetables, the correct number of oranges, that steak is steak and not stew meat — is critical.

The discussion came against the backdrop where Evolv Ventures invested in Fabric — an Israeli startup focused on robotics technology that helps large and small grocers speed fulfillment — in a Series B funding round, which totaled $110 million. Evolv’s contribution to that tally remains undisclosed.

Evolv, which Pescatello said is a $100 million fund backed by Kraft Heinz, has investments spanning what he termed the “value chain” facing the conglomerate across early stage technologies, disrupting the food industry — including new product development, such as animal-free dairy — and eCommerce. Fabric, for its part, has an automatic fulfillment center located in Israel that processes about 600 orders daily, and has a grocery site that serves same-day deliveries.

“This will be our first industrial tech investment, and I expect we’re going to get pretty active in this category,” Pescatello told Webster.

At a high level, fulfillment in the grocery store setting means leveraging data to make sure the right inventory is on hand so that shoppers who order ahead get the items for which they paid.

As noted in this space, upon the announcement of the Fabric investment on Tuesday (Feb. 25), online sales may not yet be a huge factor in U.S. grocery retail, at 3.5 percent, but they are on an upswing. To help meet demand, retailers are increasingly relying on mini-fulfillment centers that can speed deliveries.

It is the last mile before the last mile, after all, noted Webster, which exists as a “pain point” for merchants that are increasingly competing against instant delivery. That doesn't just go for larger retailers, but smaller businesses that operate on a local basis, such as grocery and convenience stores.

There’s especially a need to realize better economics on eCommerce sales in the grocery category, noted Pescatello. As he said, “eCommerce is likely to triple over the next five years or so, ... and we’re still in early innings.”

The Challenges And The Changing Consumer

Regardless of a retailer’s size, the challenges include storing inventory, having the data (and analytics) in place to determine what inventory is needed and when, as well as where it’s headed, then loading it onto the proverbial delivery van. Evolv has noted that online fulfillment is not profitable for retailers, and cited statistics showing that, on average, retailers have a negative 4 percent margin on each additional dollar of online sales.

Part of the challenges (and opportunities) lie with shifting consumer purchasing behaviors, which is where Pescatello noted that real change has happened, and is happening.

Data is key here, of course. Yet, so is harnessing that data so that emerging technologies like machine learning and AI can help retailers determine what’s in demand (and likely to be in demand) — as consumers, for example, opt for more sustainable food items, and as ordering online or ordering in-store/delivery to door gain traction.

Webster noted another wrinkle in how we shop, with a palpable impact to fulfillment: connected devices, where voice commands (through Alexa) or automatic ordering can introduce new complexities into the mix.

“The industry is growing, and there exists only a handful of folks [who] can handle this sort of technology and scale up. … The consumers are changing faster than technology in many places,” said Pescatello.

The urgency is acute, as firms are under threat from Amazon and Walmart, and where billions of dollars are invested in facilities that span hundreds of thousands of square feet. Ocado and Kroger have committed as much as $1 billion to solve at least some fulfillment friction by building large, automated and centralized fulfillment centers.

On a smaller scale, though, where micro-fulfillment centers can be located within smaller merchants (at a few thousand square feet), the stores can know the inventory on hand with much greater accuracy — making sure that what consumers buy is what they get, eliminating substitutions that can translate into disappointment.

“We know there's demand out there,” said Pescatello. “We believe micro-fulfillment can solve it.”



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