The grocery scale trap: how fulfillment assumptions impact profit
Online grocery is one of the most demanding logistics challenges, and for many retailers, profitability remains elusive. It’s still a young business model in much of the world, where strategies are often guided more by opinion than by data.
The biggest trap we see is when decisions about fulfillment are made on assumptions about what’s “fastest,” “cheapest,” or “easiest” to scale instead of on full lifecycle cost and operational modeling. There’s no single right or wrong approach to scaling, only the one that fits a retailer’s market, assortment, and ambitions. The key is to look at the whole picture before committing to a path that can quietly limit long-term growth.
The logistical ceiling of in-store picking
Many retailers start with in-store picking because it requires little up-front investment. It’s an effective way to launch quickly, test demand, and build early momentum. But as order volumes rise, this model reaches a natural ceiling – one that becomes expensive to push beyond.
The hidden costs show up in two key areas:
- Customer experience: When online picking consumes too much of a store’s turnover, in-store shoppers notice. Aisles become crowded, availability drops, and the overall experience erodes. The result is often lost customers in both channels.
- Operational inefficiency: Pick-in-store means every product is handled multiple times: received, stocked, then picked again. Those repeated touches build structural inefficiency that scales faster than sales.
At a certain point, the model simply can’t deliver the productivity numbers required for sustainable profitability.
Centralized or distributed? Doing the math
When retailers outgrow in-store picking, the next question is where and how to invest. The options usually come down to multiple micro-fulfillment centers (MFCs) or a centralized customer fulfillment center (CFC).
MFCs bring operations closer to stores and customers, but spreading volume across many sites also spreads complexity. Each location must be supplied, staffed, and maintained, diluting efficiency and creating risk of waste or uneven service levels.
Centralized fulfillment, by contrast, allows volume to work in your favor. By consolidating demand, it supports a true make-to-order model, producing exactly what’s needed, when it’s needed. This balance between speed, precision, and stock accuracy reduces both spoilage and lost sales.
Extending reach with low-investment hubs
One common misconception is that centralized fulfillment can’t serve distant regions effectively. In practice, the numbers often say otherwise.
For next-day deliveries and larger baskets, a CFC can efficiently supply low-investment transfer hubs hundreds of kilometers away; even up to 600 km in our own experience. These hubs act as smart extensions of the main site, allowing a retailer to capture new regions long before the local volume justifies a full-scale center.
This hybrid approach helps build reach step by step, preserving the cost advantage of centralization while maintaining service quality.
The mindset that drives efficiency
Whatever the setup, lasting efficiency depends less on the building and more on the mindset that runs it.
A lean, clarity-driven philosophy is essential. Every process should be simple enough for anyone in the operation to understand and improve. Efficiency gains only hold when they extend across the whole chain; boosting one metric while neglecting another just moves the bottleneck.
Performance must be measured through connected metrics that tell the full story:
- Units per hour (UPH): Measured from inbound to outbound, capturing the entire fulfillment flow.
- Drops per car and stops per on-road hour: Measuring last-mile productivity and delivery efficiency.
These figures, viewed together, reveal the true health of an online grocery operation.
A smarter path to profitable scale
At Oda Systems, we’ve learned that efficiency, profitability, and great customer experience aren’t opposing goals, they’re products of sound design and disciplined calculation. By challenging assumptions, modeling the full system, and focusing on clarity, retailers can escape the scale trap and build online operations that grow sustainably, one step at a time.