Retail in Asia

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CEO Talking Shop: Singapore’s online grocer increases fulfillment capacity

 

Singapore’s online grocer RedMart likes to say that it is a company with little resources but with a big vision: to offer customers a better way to shop for their everyday household essentials.

Founded only two years ago, the start-up has been expanding 20 percent monthly. Average order values have also consistently hovered around S$130 ($102.7) per purchase, with customers usually making purchases 1.25 to 1.5 times per month. Founders Vikran Rupani and Roger Egan expect these numbers to increase significantly later this year when it starts offering fresh produce.

According to Rupani, now RedMart’s COO & CFO, people usually buy heavy, bulky, dry, non-perishable items from RedMart, and go to the supermarket or wet market for the fresh requirements. RedMart’s plan is to become a one-stop shop delivering everything including ice-cream right to customers’ doorstep.

This early success prompted RedMart to expand its 12,000 square feet warehouse by 50 percent to 18,000 square feet last June. Plans are also underway to add another 47,000 square feet by the end of the first quarter this year. Simultaneous with this expansion is the implementation of a warehouse management system (WMS) that would support the rapid business growth and scale up easily to meet future demands.

"An online operation in any sector of retailing is challenging but e-commerce for grocery is arguably one of the most complex retail businesses from a fulfillment perspective, given the large number of unique items associated with a typical order and the fast delivery times demanded by consumers," Rupani said.

Manhattan SCALE, the solution developed by supply chain commerce solutions provider Manhattan Associates, allowed RedMart to streamline processes to accept incoming stocks, put them away to optimal locations in the warehouse, and pick and pack orders in the fastest possible manner.

Rupani said fulfillment capacity increased by over 50 percent in the week immediately following the implementation and the team believes they can increase capacity by approximately 15 percent each month without any significant increases in headcount.”

Richard Wright, general manager at Manhattan Associates, Singapore, explained that the SCALE solution provides the functionality to efficiently manage inbound and outbound movement of inventory, which results in improved productivity and better customer service – and ultimately leads to more sales.

Online retailing in Singapore

Like most entrepreneurs, RedMart’s founders built their business from the ground up; starting with what they believe can make a difference in the lives of Singaporeans.

"Egan and I started working on RedMart during our INSEAD MBA program in Singapore in 2010. As busy students, we wanted to save time and avoid the hassle of going to the store and lugging home heavy, bulky home essentials and groceries," Rupani shared. "While most find Singapore to be a small market, many factors contributed to our belief in the potential for RedMart in Singapore."

First, he said modern supermarket spend in Singapore is approximately $6 billion today, with less than 1 percent of that transacted online. This is a massive opportunity as everyone is a potential customer for as long as the company can offer the right pricing, selection, and service.

"Second, gross margins for this category are extremely high (greater than 30 percent at scale) in Singapore, mainly due the high cost of real estate. Consequently, the brick and mortar competition is forced to charge high prices. Being an online retailer and not having to bear this real estate cost can allow us, in the longer run, to pass these savings onto the customer," he said.

Third, the small geographical area and high population density make it relatively easy for an online grocery retailer to reach favorable economics on last-mile delivery. And finally, broadband and smartphone penetration rates in Singapore are among the highest in Southeast Asia customers are extremely tech savvy.

The technology advantage

Online grocery shopping has been around for some time in most parts of the world. Rupani said RedMart’s advantage, as an online retailer is that it sees itself more as a technology company than a retailer.

"To scale an online grocery offering while enhancing the customer experience requires a truly cross-functional, integrated platform, across the entire business and every step of the supply chain. There are very few retailers in the world who have done this well (save for Walmart, and to some extent, Ocado in the UK). We believe that in Singapore, and across Southeast Asia for that matter, we are leaps and bounds ahead of the traditional retailers in our technological competence and inclination towards providing a world-class online offering," he explained.

He added that most online retailers in Singapore do not have dedicated fulfillment capacity for their online offering and usually just fulfill online orders through traditional retail stores and outsource the development of a lot of the core technologies. They do not have management teams that are equipped with the skill set necessary to manage an e-commerce offering; the KPIs that they use to measure their success are biased towards having a physical presence. Their marketing teams are not savvy in digital marketing and understanding customer acquisition costs and lifetime values.

"And most importantly, the best engineers are not attracted to slow-paced multi-national corporate environments. Instead, this talent prefers being part of a disruptive start-up that is innovating rapidly and is proving its ability to become a formidable player in one of the largest retail categories in the world," he said.

RedMart, on the other hand, has assembled a team who is extremely passionate about saving people time and money and a culture and emphasis on customer service. "We are willing to take risks and try new things in the name of innovation and enhancing our offering," he said.

One of these innovations is deploying its enterprise systems on Amazon Web Services (AWS). This meant there was no need to invest in new network infrastructure and allowed to retain the benefits derived from working with AWS, including reliability, affordability and constant upgrades. Thus, Manhattan SCALE was also deployed in the cloud.

"AWS offers start-ups a one-stop shop solution for hosting systems in an affordable and scalable manner. It is very secure and stable – exactly what RedMart needs. With the technological team at RedMart and its previous experience deploying systems on the AWS cloud, it was a straightforward exercise deploying Manhattan SCALE on AWS also," Wright attested.

The future of online retailing

Rupani believes that the worldwide trend shows that people are increasingly buying their groceries and home essentials online.

"There is no reason to go to the store, wait in line, and lug these heavy, bulky goods home. There are so many better ways to spend your time. With the state of technology today, customers can simply complete their purchases without setting foot in the store, and going to the physical store will eventually become an unbearable inconvenience," he said.

The RedMart executive disclosed that the company is keen to take its offering to other cities in Southeast Asia and this will most likely happen from 2015 and onwards. "For now, we have our work cut out for us in this market," he said.

Wright also believes that with the right technology, retailers will be more efficient than ever. In fact, he said many retailers in Asia-Pacific have implemented Manhattan SCALE as well as other iterations of Manhattan’s WMS solution to improve operations and support a multi-channel strategy. These retailers include Indonesia’s PT Multitrend Indo and multi-format retail group Matahari, China’s QKL Stores, Luolai Home Textile, and the Semir Group, Australian online retail and auction company GraysOnline and the Super Retail Group.

Eyeing an aggressive growth objective to open more than 100 stores in five years, QKL stores deployed SCALE in its distribution center to streamline its entire supply chain, keep retail shelves stocked and improve customer service.

In the same way, looking to centralize distribution and optimize its supply chain, Matahari, which operates 3 major formats—department stores, hypermarkets and supermarkets – deployed Manhattan’s Warehouse Management Solution for Open Systems (WMOS) and achieved a 54 percent reduction in its inventory holding requirement and a 40 percent reduction in distribution costs.

Meanwhile, GraysOnline achieved a 15-20 percent productivity improvement across the board with Manhattan SCALE, reduced order cycle times (goods receipt to dispatch) from up to 4 days to one day and doubled order-picking capacity.

Luolai Home Textile, a home textile product retailer with more than 3,000 stores throughout China, also boosted inventory accuracy across its warehouse operations with 100 percent accuracy and a 67 percent increase in its average daily shipment volumes all thanks to Manhattan’s WMOS. The Semir Group, a leading apparel retailer in China which sells its merchandise via 7,500 sales outlets trading under the Semir and Balabala labels selected Manhattan’s WMOS to deliver measurable ROI and productivity gains in inventory management, labour management, warehouse efficiency and physical space utilization.

Manhattan’s WMOS solution is typically used by customers with more complex supply chain requirements and is helping hundreds of companies around the world to run their distribution centers and optimize their supply chains. Going far beyond basic picking, packing and shipping, the WMOS software uses advanced algorithms to mathematically organize and optimize warehouse operations and helps customers transform their warehouse logistics into a critical strategic component in their supply chain.

"The inherent features of SCALE lead to faster implementation, simplified system setup, minimized training time and a reduced dependence on technology resources. It is deployed at more than 350 companies around the world, and many of our customers have achieved return on investment in less than a year," he said.

CEO Talking Shop is the Retail in Asia section devoted to interviews with brand CEOs and retail industry leaders.