TGW and Picnic Understand Each Other as a Team in Intralogistics

An expert discussion on eGrocery (online grocery retail) with Frederik Nieuwenhuys, co-founder and CEO of the successful online supermarket Picnic, and David Hibbett, CEO of TGW Northern Europe, shows: An intralogistics specialist and a retailer can achieve great results when both parties work closely together, learn together, and see themselves as a team.

(Marchtrenk/Austria) The discussion is moderated by Alexander Tahedl, Marketing Specialist at TGW.

 What motivated you to enter the eGrocery business in 2015?
Frederik Nieuwenhuys: We wanted to focus on a niche. After analyzing retail sectors like books and shoes, we stumbled upon online grocery retail and asked ourselves: Why is this segment so small while the non-food business online accounts for about ten percent of total retail in Europe? After several years of research, we came up with an idea: to eliminate the three main reasons why people do not buy groceries online.

What are these three main reasons?
Frederik Nieuwenhuys: First, consumers did not want to pay a delivery fee – so we simply abolished it. Second, they did not want to wait for hours in their homes for their groceries – therefore, we reduced the delivery window to 20 minutes. And finally, the ordering process was too complicated – that’s why we simplified shopping and use only an app. This, combined with our Milk Run principle, has led to a model that is suitable for the mass market. All these factors, along with an efficient operational concept, have brought us to where we are today.

Frederik Nieuwenhuys, co-founder and CEO of Picnic

Did you want to make the business disruptive from the start?
Frederik Nieuwenhuys: The first line in our business plan did not say: We are disruptive! Rather, we asked ourselves: How can we create an offering and operational model that works for consumers? And: Will the masses accept the offering? Today, there are cities where 50 percent of the population uses our app, which is enormous. That’s one side. On the other hand, we had to find ways to be efficient and establish an economic concept. The Milk Run, our model for the last mile, has enabled that, as has a highly efficient warehouse operation. We were aware that we needed to automate large parts.

Were you afraid of the giants surrounding you in the market?
Frederik Nieuwenhuys: No, the offline market is dominated by giants. And there are significant economies of scale in this business. So we had to work around all these economies of scale and find our own way. We thought everything through carefully and incorporated it into our plans for rollouts in several countries.

When did you start thinking about automation?
Frederik Nieuwenhuys: It took three years before we could launch Picnic in 2015. During that time, I visited many locations and spoke with suppliers. Since we had little automation experience, we had to build that knowledge first.

Why did you decide to invest in a Central Fulfillment Center (CFC) instead of multiple Micro Fulfillment Centers (MFC)?
Frederik Nieuwenhuys: There is a trend in Europe towards building CFCs, while in the USA the focus is on MFCs. We decided to invest in a CFC because we saw some challenges in successfully operating MFCs. Of course, many brick-and-mortar retailers have enough space to set up an MFC at their location. Then they have direct access to the inventory there. But one must consider the costs incurred to transport goods to these MFCs. The CFCs, on the other hand, are sized to accept direct deliveries from a variety of suppliers, and the inbound costs are very low. Our customers can order today for tomorrow, so the number of orders and their composition can be predicted quite accurately. Therefore, we can plan the supply chain and processes in advance. This makes a significant difference compared to demand-driven MFCs.

David Hibbett, CEO of TGW Northern Europe

Mr. Hibbett, are you proud that Picnic chose TGW as a partner?
David Hibbett: Online grocery retail is a dynamic, rapidly changing segment. For a partnership, one must first ask: What are our core competencies and what are the capabilities of the customer – and do they fit together? TGW and Picnic are two technology companies. TGW has a lot of experience in efficiently moving goods in the warehouse. Picnic, on the other hand, understands the ordering systems, the supply chain, and the operations area and has developed a unique range of services. Additionally, our corporate cultures are very similar. Picnic has an exciting mindset: Everything can be developed, changed, and questioned.

Frederik Nieuwenhuys: That indeed describes us well. We now have our first major automation project and bring little experience. But we have great minds with a lot of energy and endurance. The collaboration we have built is unique for Picnic and – as I think, also for TGW. That is a good foundation, and the start has gone positively. An important factor for success in such a complex project is also the degree of transparency. Every day we ask each other many questions. I learned that from Jeff Bezos, who said: We are not a “we-know-everything company,” but a “we-learn-everything company.”

How does the fulfillment of a customer order work?
Frederik Nieuwenhuys: Customers order up to a certain cutoff time. Days and weeks before, we have forecasted the number of orders – and predicted what we will likely sell, such as how many cucumbers, milk bottles, etc. All this leads to inbound forecasts and then to orders with suppliers. We must ensure that we have the right quantities of goods in stock. For Picnic, an order completeness of over 99 percent is the goal – but also a low amount of waste. The latter is about 70 percent lower than in brick-and-mortar retail. Once we have the orders, we assign them to containers and carry out our route planning for the Milk Run. This is probably the most efficient system in the world. Then we decide which orders are scheduled for which delivery tour – and which tour starts at what time with which driver. One question drives the heartbeat in the warehouse: Which orders do we process first? That is a challenge because customers can change their orders until shortly before.

David Hibbett: The requirements from Picnic mean for TGW: The solution must be super fast and super flexible. And we always have to keep track of the order of goods. The shuttle warehouse is the central heart around which we have designed many peripheral modules. Basically, there are two picking systems. One is for large, light, and fragile goods that we want to protect. For these items, we use a person-to-goods system. The rest goes to our picking stations. All items then return to the shuttle for consolidation and are transferred to the order area after release and assigned routes.

What are the challenges in e-commerce?
David Hibbett: Basically, both the automation industry and companies like Picnic face two challenges: The rate of change and the growth rate. However, the biggest challenge is training employees. Automation requires brilliant engineers and IT experts – and there is already high demand.

Frederik Nieuwenhuys: We hire talented people from universities who learn quickly. But of course, they need some time to familiarize themselves with automated fulfillment centers. The current project is our first major automation project – and we plan many more, even outside the Netherlands. Therefore, we need to standardize software, modules, reporting, and maintenance so that we can operate a large number of facilities reliably in a similar way.

Does Picnic’s business model need to change in the future?
Frederik Nieuwenhuys: The core of our business model is very solid. We are in a mass market. I think our model has great additional potential. We have started to take back packages, and we could also ship them. When we think about warehouse automation, we also consider these processes.

Photos: © TGW (Picnic)

www.tgw-group.com     www.picnic.app