IN THE DAYS when the Web grocery business produced spectacular flops like Webvan, the South African grocery Pick ‘n Pay began developing its business case for a service that would enable shoppers to order groceries online and get them delivered at home. Call it risky, or stupid. A case of bad judgment, or bad timing?
Some three years later the retailer’s Home Shopping service has proven it was neither. To date, the service has attracted 80,000 customers, of whom 20,000 are loyal shoppers. Between 4,000 and 5,000 Web orders are delivered each week — not too bad for a country where only three million people have access to computers.
NO FRILLS
Pick ‘n Pay decided early on to avoid the temptations many Web grocers had embraced in the past: expensive automated warehouses and fancy logistics systems with single-item picking capabilities. “Stocking a warehouse and having an efficient way to pick many items and get them out fast would become very complex and very expensive,” says Elred Lawrence, technology manager of Pick ‘n Pay’s Home Shopping initiative. “Our philosophy was that if a customer could walk into one of our stores and buy a specific product, they should also be able to buy that product online. But even with our best intentions it would be impossible to try to put our 30,000 products in a warehouse for online fulfillment.”
It would also be far too costly. So Pick ‘n Pay chose another model, relying on brick-and-mortar stores. “Our pickers simply walk among the shoppers in a store, picking Home Shopping orders right off the shelves,” says Lawrence.
Store fulfillment enabled Home Shopping to piggyback on existing and reliable in-store replenishment and logistics capabilities. “At Pick ‘n Pay, nothing leaves the stores that has not been scanned on the POS,” explains Lawrence. Home Shopping goods, just like any items purchased in-store, are added to the daily sales cycle, ensuring proper inventory data maintenance both in-store and online. “Our store systems take care of the inventory,” says Lawrence. “Sales data is sent to a central computer in Cape Town that calculates the sales for accounting and reordering purposes for each of the stores in the region.”
RED CARPET
“Treat the customer like a queen and she will make you king” was the philosophy Pick ‘n Pay founder Raymond Ackerman introduced when he opened three small shops in South Africa’s Cape Town back in 1967. Royalty or not, the Pick ‘n Pay Group has grown into one of Africa’s largest retail chains, with 31,000 employees and a total of 547 stores ranging from home improvement centers to supermarkets. Today the retailer operates 135 Pick ‘n Pay stores and 90 Pick ‘n Pay franchises.
Fulfilling roughly 700 home delivery orders daily, six days a week, with an average basket size of $100, Home Shopping has not yet turned into a profit maker. Actually, the service represents less than a quarter of one percent of Pick ‘n Pay’s total turnover in stores when taken over a year. According to Lawrence, however, this was expected. “In our business proposal, we predicted it would take at least four to five years to break even. I can’t even think of any grocery retailer making money on home delivery today.” Confident about the future payback, Pick ‘n Pay focuses on maximizing Home Shopping’s efficiency and building customer loyalty. “If the customers turned to us and said, ‘This is just a lot of rubbish,’ we would shut down Home Shopping tomorrow,” says Lawrence. “But we don’t because they would really miss us.”
HANDED OVER
Currently nine stores, scattered all over South Africa, do double duty as fulfillment locations. Selected primarily because of their proximity to major cities and the computer literacy of neighboring customers, they look no different from the average Pick ‘n Pay supermarket. A second glance, however, may reveal a smallish Home Shopping office, radio frequency hand-held terminals, a couple of POS terminals, bins and shopping carts, truck lanes, and, of course, pickers.
When an online customer has completed a Home Shopping order, it gets routed to a Web-based order directory. From there, orders are downloaded every couple of minutes to an appropriate fulfillment store where they are saved on a picking system and sorted by delivery day and delivery time slot. When it’s time for picking, the system converts Web orders into an electronic picking list that can be displayed on the radio frequency hand-helds. As pickers are assigned specific orders, they log on to the hand-held identified with the order and scan their bar-coded shopping carts for order tracking. The hand-held directs the picking order, taking both store layout and product type into consideration. As it is picked, each product is scanned with the hand-held to be checked against the picking list for 100% picking accuracy.
If by any chance a product is out of stock, pickers may replace the product, but only if the customer has agreed to substitute items when placing the order. This is notified by the hand-held. There are also lots of substitute rules to keep track of. “For olive oil,” says Lawrence, “pickers look for a similar price-range oil, or the same product in a smaller bottle. For pet food, they know never to substitute the food outside the original brand.”
THE ICE CREAM TEST
Groceries are delivered as early as 9 a.m. and as late as 8 p.m. For a 4 p.m. delivery, orders have to be placed before 9 o’clock the same morning. Once the trucks have left with the last order of the day, pickers often start picking the next morning’s dry goods.
Trucks and drivers are outsourced; Pick ‘n Pay pays a variable cost depending on mileage. Trucks are one of the biggest costs in the home delivery business, and trucks that get lost even more so. A routing system creates the most effective delivery schedule and map, and prior to starting, drivers are provided with detailed directions and the coordinates of customer locations. A national address directory is also used to compare customers’ zip codes with suburb locations, and red flags are raised where information does not match. Making sure that the groceries arrive on time is as important as delivering them fresh. With temperatures inching toward the 100s in the South African summer, special coolers and ice packs in the home delivery trucks make sure lettuce stays crisp, milk cool, and ice cream frozen.
“We’ve actually done tests,” says Lawrence. “We parked a delivery truck in the midst of Cape Town’s heat wave and left it there for 24 hours. When we came back the ice cream was still hard.”
Margareta Mildsommar has covered retail IT technology in the U.S. and abroad. She can be reached at [email protected].
Customized Home Delivery
Pick ‘n Pay offers home shoppers the ability to register with up to four different delivery addresses, enabling a family to order groceries for themselves, their parents, and even their summer house. When logging into Home Shopping, customers are asked to select the address where they want their goods delivered. “This is a very important step,” says Elred Lawrence, technology manager for Home Shopping. “Based on the delivery address, a selection system decides which store is the most local fulfillment center.” Depending on the delivery location, the correct fulfillment store’s product list is downloaded and displayed for the shopper. “Some of our larger hyper-markets carry almost 30,000 items, while others only carry 19,000 products,” says Lawrence. “If we offered a general product selection online, customers would be ordering things that their local fulfillment store might not be able to fulfill.”
— MM
THE PICK ‘N PAY GROUP
Headquarters: Cape Town, South Africa
Sales in 2002: R26 billion ($3.2 billion)
Average size of fulfillment store: 4,000 sq. meters
SKUs: 19,000 to 30,000
No. of Home Shopping shipments: 80 per store per day
Picking method: RF hand-helds driving manual picking
No. of trucks per store: 6-8
No. of pickers per store: 6-12
Web site: www.picknpay.co.za
Suppliers
Web site: Sun E450 running Sun Solaris, Oracle, Tomcat, Apache
Warehouse system: Instore-Edge, IBM Intel processor running Red Hat Linux and OracleRetail System; NCR POS Plus
Picking system: Instore-Edge from RangeGate Systems, partner of Symbol Technology
Bar code scanners: Symbol hand-held RF-based scanners and antennas