The co-founders of TakeoffTechnologies , José Vicente Aguerrevere and Max Pedró, started with therecognition that the biggest barrier to success in grocery ecommerce has beenthat the business isn’t profitable – every dollar that shifts from in-store toonline reduces profitability. They askedwhat would happen if the advantage of automation were applied to the store, and then created an efficient micro-fulfillment center solution that transforms eGrocery economics to solve the challenges of cost and the last mile.

We sat down with José Vicente (now CEO) and Max (now President), to better understand their vision of hyper-local fulfillment and whyit’s an idea whose time has come.

This Q&A is partof the Brick Meets Click Spotlight series. Special thanks to our sponsor TakeoffTechnologies, Inc.

BMC: What does the Takeoff Technologies approach bring to grocery ecommerce?

José Vicente & Max: Takeoff leverages automation and location togive a store its own hyper-local micro-fulfillment center, making it possibleto assemble online orders profitably and in close proximity to the customer. It’sa two-part solution to the core economic challenge of grocery ecommerce –profitability.

First, we bring robotics and automation to the task ofassembling orders, which makes it much faster, more efficient, and lessexpensive than current manual methods. Second, we do this at the store locationclose to the customer’s home. This has a lot of cost benefits – from takingadvantage of existing supplier delivery points and store personnel, to makingit a lot cheaper to cover the last mile.

What motivated you to create Takeoff Technologies?

The two of us have been in grocery for 20 years, so we know first-handhow challenging the industry is. A couple of years ago, we were having coffeewith Mick Mountz, one of the founders of Kiva Systems (now Amazon Robotics),and he was telling us about Kiva’s solution for automating the warehouse. Wewere both impressed with the economic advantages. After thinking about it for awhile, we started asking ourselves, “Why not bring these advantages to the grocerystore?”

When we ran the numbers, we were amazed to see the amount ofsavings that were available. We thought this could be a breakthrough: creatinga super-efficient, store-based system for online grocery that wouldn’t just stopsupermarkets from losing money, but actually make ecommerce more profitablethan the store.

The automation piece was a big idea, but realistically italso represented a significant transition that could take supermarkets a lot oftime and cost to develop by themselves. We believed we could bring a lot ofvalue to retail operators by offering a turnkey solution. The void we wanted tofill was supplying a system that did two things:

• It was fast to market because it didn’t take alot of time to get up and running.
• It was super-efficient, so that the economicadvantages on both the balance sheet and the P&L were compelling.

That’s when we decided to make Takeoff Technologies areality.

How does Takeoff Technologies improve grocery ecommerce operations?

These days, most supermarkets (and other retailers) haveexcess space in their stores. We work with retailers to identify 8 to 10thousand square feet of underutilized space in their existing locations, and weconvert that space to a complete, automated micro-fulfillment system. It’s anend-to-end solution that includes robotics, an ecommerce platform, online inventorymanagement, and customer service, reporting, and analytics.

The expense of manual in-store picking is one of the majorreasons why ecommerce loses money for grocery retailers.

• The robotic automated picking center can pick upto 600 lines per hour (900 items), compared to 45 lines (60 items) per hour forin-store picking.
• The system is capable of handling 3,500 onlinegrocery orders per week per location on a 2-hours service policy.
• It’s easily replicated and can be rolled outrapidly – it takes about 12 weeks to install a new facility as opposed to twoto three years for a typical automated distribution center project.

Co-locating the system in existing locations also reducescosts by taking advantage of:

• existing supplier delivery points
• existing labor force
• lower transportation costs compared to a remotewarehouse or dark store
• lower cost of delivery since customers usuallylive close-by, and increased pickup activity since people are alreadyaccustomed to stopping by the store take care of their grocery needs

One way to look at this is that we’re making it possible forgrocery retailers to convert dead space into a profit center.

Why do you think the time has come for this kind ofmicro-fulfillment solution?

Consumers are clearly interested in the convenience ofonline grocery, and we believe that the market is migrating to fast service. Micro-fulfillmentallows retail operators to serve that consumer need – efficiently and at a low,profitable cost.

While online grocery pricing is always the retailer’sdecision, the cost of the micro-fulfillment center is so efficient that itenables retailers to sell products to online customers without additionalmarkups or fees. When grocers in France started selling online at “same price,no fees,” the market went crazy. Consumers reacted enthusiastically, driving a high penetration of theservice.

We think it’s the right time because consumer demand forfast service and convenience is increasing, and this is a way to satisfy thatdemand profitably.

From a business metrics perspective, how will your technologyimprove profitability performance?

Let’s start with the impact on investment. Keep in mind we’re talking about installingthe automation in less than 10,000 square feet of under-utilized space in thestore, and that each unit has the capacity to handle $30 million in orders per yearper location. In terms of assetproductivity, return on investment is fast – less than one year for retailers. Weestimate that:

• Building a typical new supermarket requires aone-time investment of 60 cents in assets for every dollar of annual sales.
• For our ecosystem, the cost of automation is 10cents for every dollar of annual sales, and the overall installed cost, including renovation, never exceeds15 cents.

This means the investment needed is only a fraction of theinvestment required to generate the same amount of sales within the store.

In terms of the impact on cost of operations, the economicsof the micro-fulfillment center are better than manual picking when ordersexceed 50 per day.

• The typical supermarket experiences a “cost toserve” of 23% to 25%.
• The total “cost to serve” for a manualpicking operation at store level is typically 40%
• For the automated micro-fulfillment center, thetotal “cost to serve” is 12% – half that of the supermarket.
• Finally, inventory turns are 3 times faster inthe automated micro-fulfillment center (vs the store) which dramatically increasesthe return on investment.

Thinking about speed to market, our solution offers two waysretailers can accelerate the roll out of this service to the greatest market coverage, beyondjust pickup and delivery options from one store.

• The first way has to do with theestablishment and operation of a “hub and spoke” logistics system where 1 unitcan support 8 to 10 sister stores located within a two-hour drive of the hubstore.
• The other involves putting together a network of third-partyoutlets – convenience stores, drugstores, etc., that are ready to installlockers on behalf of a food retailer.

All of this is made possible withspecial delivery totes that maintain temperature for 24 hours, so that either dedicated or crowd-sourced transportation works well.

What makes this applicationof automation and robotics unique and different?

Takeoff’s hyper-localmicro-fulfilment system isn’t a project or a pilot, it’s a product – and aproduct has to be reliable, repeatable, and scalable.

In August2017, we formed a partnership with Knapp to supply the hardware automationportion of our end-to-end technology solution. Knapp is a global leader inmaterial handling, automation, and robotics. To that technology, we added a biglayer of intelligence to ensure it accommodates the unique requirementsof grocery. This partnership provides two advantages that are important to operators.

• Reliability: Knapp has produced technologically advanced equipment for many years,and their record of reliability is extremely strong. No retailer can afford to sella customer a service that works only 80% of the time.
• Scalability: Knapp has the capacity to meetdemand. No retailer’s roll out will be limited by the capacity to produce thesesystems. In fact, our current contracts project installing more than one a week– and that’s based on retailer demand, not production capacity. We could do a lot more if needed.

What’s ahead for TakeoffTechnologies?

We will open our firstever automated supermarket in October with one of our U.S. grocery retailpartners, with several other sites to follow. We are also working with severallarge grocery chains with plans to deploy the system at dozens of sites in thenext two years, and we have the capacity to meet a strong demand formicro-fulfillment centers.

ABOUT TAKEOFF'S LEADERSHIP

José Vicente Aguerrevere is Co-founder and CEO of Takeoff Technologies,Inc. He is a serial entrepreneur with a passion for retail and disruptivebusiness models. He is also theCo-Founder, Chairman and former CEO of Dia Dia Practimercados, an innovative groceryretail business chain in South America. José Vicente holds an MBA from Harvard BusinessSchool, Baker Scholar.

Max Pedró is Co-founder and President ofTakeoff Technologies, Inc. He is an eCommerce and Financial Servicesentrepreneur and executive with a strong track record of transformingindustries, re-imagining retail, and delighting customers. Before foundingTakeoff Technologies, Max served as Vice President of Financial Services forWalmart Stores in Bentonville, Arkansas. Max holds an MBA from Harvard Business School,Baker Scholar.

If you areinterested in speaking with Takeoff or wish to learn more about how Takeoff canhelp you to drive greater profitability in online grocery, please email info@takeoff.com .

Editor's note: Thanks to the team at Takeofffor sponsoring this Spotlight blog interview, in which our questions aredesigned to show how retailers can benefit from using new technologies to meetthe needs of today’s shoppers and drive profitability.

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