Insights - Multichannel Transformation

The core element of METRO’s growth strategy is the transformation of the company into a multichannel wholesaler optimally serving its customers both in-store, in terms of delivery as well as on the digital marketplace. An essential aspect of this is converting the wholesale stores into so-called Multichannel Fulfillment Centres (MFC) in order to significantly raise the operational efficiency and delivery capacity of the stores as warehouses and delivery platforms. As a result, customers, benefit from both enhanced goods availability, a more efficient purchasing process and an elevated service level in delivery.

We asked Joachim Lindner, heading the Multichannel Network Transformation at METRO and Philippe Ernoul, responsible for Multichannel Fulfilment Centres, about the concept and the associated changes.

With its sCore strategy, METRO has set itself ambitious growth targets; in particular, delivery sales are to triple by 2030. What does this have to do with our stores?

Joachim Lindner: To achieve the ambitious targets set within the frame of sCore, especially tripling delivery sales by 2030, we need to accelerate the transformation of METRO into a multichannel wholesaler. One very important step is transforming the existing network of wholesale stores and delivery depots at a global scale to be high performing assets for multichannel operations. It follows a strategic roadmap that will enable us to build up and secure the required infrastructure in time to drive the sustainable delivery business growth, without being held back by capacity bottlenecks.

When it comes to securing the needed delivery capacity, we apply the “sweating-the-asset” approach, which means the primary focus is on converting our wholesale stores into Multichannel Fulfillment Centres (MFCs). Moreover, we also look to add new fully dedicated delivery depots to the network where the MFC-enhanced delivery capacity still cannot fulfill the demand.

What exactly is behind the term "Multichannel Fulfilment Centre"?

Philippe Ernoul: The basis of the multichannel transformation of our stores is their consistent wholesale orientation, so that they will fully contribute to the execution of METRO’s sCore growth strategy. In detail, there are 3 key levers of the MFC installation: Space Management, Stock Management and In-Store Logistics. In space management, one primary focus is the simplified product presentation based on bulk packaging directly on pallets that, together with a wholesale-focused assortment and wholesale-oriented pricing schemes, enables smooth and efficient goods handling in the store. Secondly, we are currently digitalising our stock management through our stock location system that will improve transparency and our service level for both in-store as well as delivery customers. Third, we are introducing the logistics principles next to commercial approach into store layout in order to improve both the customer in-store purchasing experience as well as the picking productivity for the delivery operations.

There is already out-of-store delivery in many stores, what exactly is changing here?

Joachim Lindner: In all our MFC transformation projects, we invest in expanding and optimising the delivery zones in our stores. We have defined an individual target structure for each store, which differs mainly in the size of the specific delivery areas and the extent of separate cooling zones. We determine the right size, layout, infrastructure and processes for each single location based on the logistics throughput, customer order characteristics and the specifications of the last-mile routes delivered from this location. The MFC set-up allows us to benefit from synergies between the stationary wholesale store and the delivery business as we run the logistics operations for both channels through an integrated process and organization. This is driving up productivity for example in our goods receiving, replenishment and stock-management activities.

MORE Podcast with Joachim Lindner about Multichannel Network Transformation

Has the concept already been implemented and are there already best practice examples?

Philippe Ernoul: We have already introduced the MFC concept in 14 countries and it will be rolled out to more countries successively in the coming months. The implementation status varies from country to country. Poland, for example, was one of the first pilot countries and has now converted all stores to the new concept - with visible success. The digitalisation and optimisation of processes not only leads to more efficient store operations, but also to better goods availability and an enhanced FSD (Food Service Distribution) service level. Similar improvements can be observed in the latest implementations in Sofia, Torino and Bilbao.

In addition, we are constantly harmonizing our IT processes in a joint effort with our in-house IT solutions division METRO Digital, leveraging the operational experience of our local teams in Poland, Romania, Spain and Hungary. This harmonized system is now being rolled out everywhere.

Does the concept apply to all stores and countries?

Joachim Lindner: Yes, in general all stores are being converted into MFCs - however, the scope and extent of the conversions varies greatly. As part of the Multichannel Network Transformation (MNT), we have looked into all METRO/MAKRO countries and locations with regards to their market potential and the need for individual location development. This can range from in-store wholesale optimisation and the digitalisation of processes as a common basis to structural adjustments of a store and the construction of a complete new depot - the latter, however, will only be the case in metropolitan regions with particularly strong demand.

However, it is important to emphasise that the implementation of the MFC concept is essentially based on the optimal use of the existing infrastructure. This not only saves time and investment, but also gives us a clear location advantage as our stores are usually situated in good locations from the last-mile delivery perspective, with direct access to major ring-roads of the cities they serve.

What is the level of investment in the coming years? And which countries are in focus in 2024?

Joachim Lindner: Over the next three years, we will invest a total amount of around 600 million euros to make our network future-proof and thus contribute to achieving our growth ambitions by 2030. In the next three years, we will complete over 150 major store transformation projects and new depot openings across our network. While all countries and as well the full FSD companies have their share and projects in our global network transformation program, the major investment projects in the immediate future target metropolitan areas like Paris, Hamburg, Bucharest or Madrid.

The transformation of METRO´s wholesale stores into Multichannel Fulfilment Centre (MFCs) essentially centres on three key areas, which are explained in more detail below:

1. The sales area is being redesigned within the framework of the space management to ensure clear focus on the wholesale-driven assortment, pricing and product presentation. The product assortment is optimised to offer relevant items for professional customers and is consistently geared to their needs. Simplified and long-term pricing schemes such as "Buy More Pay Less" (BMPL) provides planning security and predictability for customers. Moreover, Bulk-package products are presented directly on pallets to benefit customers with an easy and efficient handling but also helps raise the replenishment productivity for the store.
2. Complete digitalisation of the merchandise management system is introduced to boost the stock management. With the digital tools and systems, store staff is able to maintain real-time cross-channel control and transparency of the inventory both in store operations and in the delivery process. It further drives up the operational efficiency and product availability that in turn better the service level for the customer.
3. As the MFC installation now combines the regular store operations with the delivery service, fully integrated in-store logistics plays an important role to ensure the efficient inbound and outbound supply chain. In particular, the delivery picking process is optimised for both picking across the store and in the designated Fast-Moving area, which varies in size and structure depending on the delivery capacity and demand volume of the individual location.

Where is the new MFC concept already being implemented, how much is METRO investing into the Multichannel Network Transformation and are there already concrete positive results? We have a few infographics offering the facts for you.

The Multichannel Fulfillment Centre (MFC)-Concept is already being implemented in 14 METRO/MAKRO countries and will be further rolled-out to all other countries in the near future.

With MFC transformation, MAKRO Poland now operates with dedicated multichannel replenishment teams for both in-store shelves and delivery picking to further boost the product availability from 94.8% to 98.6%.

The optimised shift schedules for delivery picking have contributed to picking productivity growth from 28.2% to 32.7% at MAKRO Poland, in terms of the number of order-lines per hour.

*Data based on 10 MFC pilot stores at MAKRO Poland

Over the next three years, METRO is going to invest around 600 million EUR in over 150 major store transformation projects and new depot openings to establish a future-proof multichannel wholesale network.