An Interview with Grocery Gateway
In the previous issue of Logistics Quarterly (Spring 2001, page 16), we published an article about the business-to-business craze, featuring Grocery Gateway, based in Toronto. Today E-business bubble seems to have burst and many businesses have failed. In this article, as a follow-up interview, Nicholas Seiersen interviews Claude Germain, the Chief Operating Officer of Grocery Gateway, and looks at ways Grocery Gateway has mitigated the pitfalls converging on many businesses.
Nicholas Seiersen: With the benefit of hindsight, what are the limits of your business model?
Claude Germain: Our business model is very focused on a drive-to-cost position in a specific niche. There are two core capabilities within our business model. Broken case picking and direct delivery. Our aim is to have the low-cost position. On broken-case picking, we have optimized our facility only for broken-case and for pick-per-sku profile of close to a ratio of 1:1. This is the profile of E-commerce orders. We are not well suited to handle case picking, or store fulfillment of broken case where the pick-per-sku is higher than a ratio of 1:1. Our niche is fulfillment. That being said, we absolutely have cost position better than any other broken-case facility I have seen, while being mindful of our focus and resulting specialized set up. That also means that we tend to carry consumer skus and not commercial or institutional skus. As an example, that means that all of our skus fit into shipping totes and that we rarely sell master cartons. Now, on direct delivery, we have optimized around small-order drop off. Our average totes-per-order are four to five. Larger drop offs that could benefit from being palletized do not fit our model. Indeed, our trucks are customer designed and resemble UPS trucks — but with three temperature zones.
Nicholas Seiersen: Have you found that certain consumers find your business model particularly relevant?
Claude Germain: We tend to define our segment more in psychographic terms rather than demographic. We serve customers who are predisposed to convenience. They are mostly two-income earners with kids, but can also be downtown dwellers who don’t have a car, as an example. We cater in other words to the two-thirds of shoppers who dislike grocery shopping as a chore (and offer up seven-days-per-week, 24-hour access, 90-minute-delivery windows, etc). Nevertheless, these customers are still value conscious, so we still price at retail and offer up a full complement of products — essentially what you would find in a large grocery store, including all perishables, beer and wine, health and beauty aid, bestselling books and videos, Starbucks coffee etc.
Nicholas Seiersen: The business is growing fast enough for you to have opened a new facility last month in Northern Toronto. Building on the learnings from your previous start-up and the operations to date, what approach have you taken for this start up?
Claude Germain: We try not to be on the bleeding edge and have therefore incorporated into our facility design many facets from other industries. We are very much a blend from high-speed manufacturing, mail order and courier hub. Whereas the lexicon is similar to a grocery Distribution Centre (DC), that is where the similarities with the grocery industry end. As for our technology, I hate to admit it, but we had to over invest in in-house systems integration talent. Nothing we received from vendors was remotely plug and play, and required a tremendous focus and learning curve to integrate, scale and stabilize. Our technological components include Web-order processing (in-house), automated routing (from Descartes), each picking focused Warehouse Management System (WMS), Warehouse Control Systems (W&H Conveyors) and Picking Sub Systems (RTS).
Nicholas Seiersen: Any lessons from the trenches on how to pull off a fast successful start up?
Claude Germain: Our newest plant is 280,000 square feet at a cost of $15 million. From design to start up will have taken nine months. We hired experts in high-speed manufacturing and in mail order, and combined them with our inhouse industrial engineers and system integration team.We then recruited top-notch project management skills. At first our approach was like a consulting company. We clearly determined what we wanted to execute against, from a throughput, cost position and capability perspective. We then studied business models out there and took pieces that seem to fit. We then segmented our design into nine – a three-by-three matrix that has A,B,C movers on one axis and three temperature zones on the other. We then tried to fit the best design and technology into each and played with integration issues to arrive at a balanced blend that would meet out objectives. We then started going to tender and executed against basic startup methodologies.