According to the UN, nearly 70% of the world’s population will live in dense metropolitan cities by 2050. If New York City’s 1.5 million daily packages is any example, today’s urban infrastructure is breaking at the seams as e-commerce penetration grows and delivery times shrink. In the US, groceries are the last vertical to be revolutionized by e-commerce. Today, just 3% of total grocery spending occurs online. In the next two years, FMI/Neilsen expects online grocery penetration to skyrocket to 13% of total grocery sales, or ~$100bn. Small-scale warehouses colocated in existing retail sites or parking garages offering 1hr delivery times, known as micro-fulfillment centers (MFCs) pose a potential solution and are coming to a major city near you in the near future.

Source: Cowen, US Census Bureau

Ever since Amazon acquired Whole Foods, grocers have been looking for technology solutions to stay competitive, building robotic Amazon-like fulfillment centers dedicated for online grocery delivery. The first iteration of these partnerships is evidenced by Kroger’s investment into 20-year-old, UK-based Ocado. Its warehouses are as large as 375,000 square feet, cost $55mm to build over 2–3 years, and are located on city outskirts. The next iteration of startups like Takeoff, Fabric, and Alert Innovations occupy a small fraction of the size, located inside existing retail sites or parking garages, and optimized for the “scooter-able” last mile of delivery (think Mopeds). While two-hour AmazonFresh delivery is now included as part of Prime membership in 20 metropolitan markets, it has a lot of room for optimization. There are challenges around relying on the speed of human pickers, reconciling e-commerce inventory with Whole Foods retail inventory, as well as efficiently serving the last mile of delivery to customers. Similar to its normal package congestion, AmazonFresh drivers must sometimes construct makeshift racks to hold delivery orders on the street while they sort through and deliver each order on a particular city block.

AmazonFresh drivers post makeshift racks to house the last portion of delivery on New York City blocks (Source: HNGRY)

“What are underutilized spaces in cities that have reasonable rents that can enable two hour delivery of almost any item to a consumer?”

But what if Whole Foods was built in 2020? Over the holidays, I visited Fabric’s first grocery facility inside of an underground parking lot in the heart of downtown Tel Aviv, Israel. Beginning this month, the ~18,000 square foot center will exclusively fulfill orders from Rami Levy, the largest grocer in Israel. My immediate emotional response was equivalent, if not more jaw-dropping, to my first visit to a CloudKitchens warehouse a year ago.

Inside, robotic pickers whiz around three temperature-controlled rooms that stock 6,000 unique product SKUs from fresh produce to frozen pizzas to non-perishable goods. The average order is picked in four minutes and the entire facility requires four staff and two managers.