That reality is not a distant goal. While retailers of every size have their eyes on the future of robotics and AI, including the use of delivery drones, self-driving truck services, and more, there are goals that are achievable in the near term, including embarking on what Amazon and Alibaba have already mastered: applying logistics automation to accelerate the supply chain and meet consumer demand for near-real-time fulfillment.

Reaching for the gold standard

The gold standard for success is Amazon Robotics. Formerly known as Kiva Systems (which was co-founded by ROBO Global Strategic Advisor Raffaello D’Andrea), Amazon Robotics is known across the industry for its recognizable orange bots that cruise around its warehouse floors as they pick and fulfill customer orders 24/7. But even that is just the first step for an industry that is striving to embrace e-commerce and become more digitally minded across the operations landscape. According to Adobe, e-commerce still only accounts for about 20% of all retail sales. In an effort to increase that percentage, digital retailers are setting up physical stores that encourage consumers to stroll through and touch products. At the same time, traditional retailers are experimenting with virtual reality, chatbots, and augmented reality to promote products in brick-and-mortar stores. But even with these customer-facing innovations, the biggest opportunity for improving the customer experience remains in logistics automation. In addition to cutting operational costs, logistics automation is the key to one of the most important goals for every retailer: dramatically reducing the time between order and receipt to the customer.

It’s a fact that consumers want to receive what they purchase as soon as possible, and Amazon and Alibaba have both set the bar high, promising next-day and same-day delivery for the majority of their products. Matching this accelerated tempo of fulfillment requires advanced analytics, automation, and optimized supply-chain solutions that can only be achieved with the use of AI. To meet this need, software companies are now offering warehouse management solutions designed to help retailers fulfill e-commerce orders efficiently and profitably. Manhattan Associates offers a solution that enables retailers to optimize every aspect of omnichannel operations at every touch point—from headquarters to contact center to store. Kardex Group’s solution offers intelligent modules that can be expanded and networked with one another to grow with a company’s automation needs. As solutions like these accelerate, so does the opportunity for small and mid-size businesses to grab their share of e-commerce sales.

The impact on online grocery

Online grocery retail is expected to grow at a double-digit rate globally over the next 24 months, according to grocery research firm IGD.

Amazon’s Whole Foods acquisition signaled the convergence of traditional e-commerce and grocery in the US—and set the stage for a complete industry disruption. That shift is mirrored in the UK by Ocado, the world’s largest online-only grocery chain. Ocado’s home-grown warehouse solution uses a machine learning algorithm that operates the company’s giant, three-story grids and cubes where robots zoom around the top of the blocks picking items from crates. Currently, Ocado processes 1.7M items a day across its four automated fulfillment centers which can pick and pack an order of 50 groceries in just 5 minutes. The company’s roadmap is to put the world’s retailers online using Ocado’s proprietary logistics expertise and data center technology that includes the cloud, robotics, AI, and IoT. Ocado is currently working on mastering the art of true robotic picking, where robots are able to pick products from crates and pack the groceries into the bags without human assistance. According to Ocado, this robotic development will be a further breakthrough for the online grocery industry where penetration is now only 1-2% in the US and 7-8% in the UK.

Nielsen and the Food Marketing Institute have both forecast that 10% of the US $1T annual grocery business will shift online within the next 4-6 years, opening the door to a $100B annual market.

The investment opportunity

Since the inception of the ROBO Global Index in August 2013, the logistics automation subsector has been up 200% cumulatively, through Q3 2018. Over the past three years, the subsector has outperformed the S&P 500 by an impressive 113%. Considering the level of investment in the space—by the giants and the smaller retailers who are following in their footsteps—investors can expect tremendous growth in the logistics automation subsector for years to come.

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