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Home » This German Warehouse ‘Plays Tetris’ — Aiming to Rival Amazon

This German Warehouse ‘Plays Tetris’ — Aiming to Rival Amazon

This German Warehouse ‘Plays Tetris’ — Aiming to Rival Amazon
November 20, 2018
Bloomberg

In an industrial park outside Cologne, German grocer Rewe Group is fighting back against Amazon.com Inc. with what it describes as the most technologically sophisticated online-shopping facility in Europe.

The closely held retailer’s building, the size of 2 1/2 soccer fields, holds 20,000 items from drinks to diapers, twice as many as a typical supermarket. Products are stored in half a dozen distinct cooling zones. Orders are assembled with the help of a towering labyrinth of carriages, elevators and conveyors synchronized by the company’s algorithms, before they’re loaded on trucks and shipped out across a roughly 1,000-square-mile region from the Dutch border to Dusseldorf.

All that tech — which contrasts with Amazon’s largely human-operated grocery warehouses — is needed because of the country’s strict laws on handling fresh food. For example, ground meat must be stored at no more than 2 degrees Celsius, apples and grapes at no more than 7 degrees and bananas and avocados at no more than 14 degrees.

The complexity of those rules is one reason why online grocery sales have yet to take off in Germany. Now Rewe sees an opportunity to beat Amazon and other online retailers, like the U.K.’s Ocado Group Plc, at their own game.

“We need six different cooling zones, while Ocado in England can make do with three, making the complexity of our supply chain brutal,” said Wolf-Axel Schulze, who runs the project. “Brutal, but fascinating.”

Contrasting Approach

Rewe’s approach contrasts with the strategy of the fast-growing German-based discounters Aldi and Lidl, which use lean assortments and logistics to maximize efficiency and slash prices. Their market power has pressured prices at mainstream supermarkets, squeezing profit margins and helping to keep Amazon at bay. The U.S. giant offers its Fresh service in only three German cities: Berlin, Hamburg and Munich.

Ocado runs its own U.K. online grocery and licenses out its warehouse technology, which deploys a robot grid that it calls an engineering breakthrough. Its deal with Kroger Co. means that technology may soon automate warehouses and speed delivery at the U.S.’s largest supermarket chain.

Rewe says it takes an even more high-tech approach at its Cologne site. Its system automatically handles fresh produce and cold cuts sold by weight, rather than requiring human intervention. The 80m-euro ($90m) facility “plays Tetris” when getting goods into place for delivery, making sure everything fits while complying with the food-handling rules, said Andreas Palmen, who oversees the site.

Boxed goods are automatically sent from high storage racks via roller conveyors designed by Austria’s Knapp AG. The receiving, picking, packing and shipping areas all need to have the same temperature zones as the storage sections, complicating the task of assembling a typical 50-to-150-euro order.

The conveyors send items past scanners that eliminate any goods close to their best-before date, and finally to human “pickers” who fill bags and boxes for loading onto trucks. In a traditional warehouse, the pickers go all the way to the shelves to fetch goods, walking miles back and forth.

The site is designed to handle 120m euros in annual revenue, Rewe Chief Executive Officer Lionel Souque said at an event for the warehouse’s opening.

“We cannot say when we will earn money with this,” Souque said. “It is an investment into the future.”

Despite its high-tech image, Amazon takes a far less automated approach to the warehouses for its Fresh grocery service. Human workers pick goods by hand, as eggs, produce and fresh-baked bread need a gentle touch and a person’s eye checking for quality, spokesman Stephan Eichenseher said.

Rewe does have teams of people who monitor and evaluate its delicate goods, and “this is all the easier if the employee concentrates on order picking and not on running, as in manual warehouses,” Rewe spokesman Raimund Esser said by email.

Challenging Market

Germany has more supermarkets per capita than most European countries, and as befits the home of Aldi and Lidl, Germans are penny pinchers when it comes to food. Consequently, online is still a niche, representing about 1.7 percent of fast-moving consumer goods by value, compared with 7.6 percent in the world-leading U.K., according to data from Kantar Worldpanel.

The top five grocers in Germany hold a commanding 74 percent of the market, according to market researcher Nielsen. Rewe at about 17 percent is second only to Edeka, which has 23 percent, followed by Lidl owner Schwarz Group, Aldi and Metro AG. But rivals aren’t yet venturing where Rewe is going.

Edeka’s home deliveries are limited to Berlin and Munich, while Lidl’s online shop mostly sticks to nonfood items. Metro’s Real hypermarket chain offers “click and collect” pickup service, as does Rewe, but limits food deliveries to nine German regions. Rewe says it delivers in 75 cities, potentially reaching four in 10 Germans.

“With supermarkets at every corner, and people still being very price-sensitive, business is much harder here both offline and online,” said Franziska Schmidt, an analyst at PlanetRetail RNG in Frankfurt. But Germans will buy groceries worth 205bn euros this year. “Even if just 10 percent of that were eventually ordered online, you can see the country is a sleeping giant.”

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