Amazon's delivery drones have not yet reached Israel, but online orders from Super-Pharm will soon be packed by robots. Sources inform "Globes" that the pharmaceutical chain has hired Tel Aviv startup CommonSense Robotics to set up and operate a logistics center in which the products are automatically picked off the shelves by robots. Construction of the center has been going on for several months, and the center is scheduled to begin operations in the next six months. Super-Pharm will pay CommonSense Robotics a monthly retainer for use of the center, the amount of which will depend on the volume of sales.
Retail food and pharmacy chains are not yet achieving substantial profits from online sales; some of them are even posting losses from them. CommonSense Robotics hopes to make deliveries profitable for the retailers and more available for customers through the use of artificial intelligence-based technology for automated order picking. The company completed a $20 million financing round in February, led by the Playground Global venture capital fund.
The company's logistics centers operate on the micro-fulfillment center (MFC) model, which features fairly small facilities that can be established in municipal centers, making them more accessible to customers. The facilities consist of a product warehouse in which robots collect the boxes from the shelves according to the orders and send them to the packing employees in order to make the process as efficient as possible. In CommonSense's model, it operates the logistics center, employs the workers, owns the robot equipment, and leases its services to retailers.
Following the company's February financing round, CommonSense CMO Ran Peled told "Globes," that the first warehouse had already been opened in Holon, and a pilot was scheduled to begin with an Israeli retail company. A source close to Super-Pharm confirmed that the pilot would be conducted with the company. Super-Pharm confirmed the report, and Super-Pharm VP organization and information systems Yossi Cohen said, "We believe that cooperation with CommonSense Robotics will give us a significant advantage."
Super-Pharm launched its online delivery service in January at a cost of NIS 10 million. Sources close to the chain said that online sales already account for 6% of the company's overall sales, and are projected to reach NIS 1.5 billion for the year. Super-Pharm's logistical system utilizes FedEx, based on 10 stores in which the merchandise is picked out, rather than through online warehouses, as maintained by Shufersal Ltd. (TASE:SAE), which controls New-Pharm, Super-Pharm's competitor.
The service is offered at NIS 30 per delivery of products totaling up to NIS 300 and free of charge for orders of over NIS 300. Deliveries are made within 24 hours. The pilot with CommonSense, which will be launched initially in the Greater Tel Aviv metropolitan area, is projected to shorten delivery times in that area to a few hours. CommonSense says that its service also cuts labor costs for retailers by up to 75%. In view of the ongoing competition with New-Pharm, it is likely that delivery prices will fall.
Already in December, a month before the online delivery service was launched, Super-Pharm joined the SigmaLabs startup accelerator as a partner, announcing its intention of investing tens of millions of shekels in the accelerator and working with startups in the retail and lifestyle fields. Super-Pharm VP marketing Ofer Levi said at the time, "With the launching of Super-Pharm online, we want to be in the forefront of logistics and service." He added that the accelerator was likely to prove a suitable platform for this. CommonSense does not come from SigmaLabs; it appears that these are two parallel measures for improving technological performance.
For CommonSense, the pilot marks expansion into a sector that according to the company's statements is not a focus for its strategic plans. CommonSense cofounder and CEO Elram Goren said in February that the company was planning to focus on the food market: "The focus is a drastic change in the attitude to food, in the way it is purchased, and eventually in its preparation. We believe that our solution will play a critical role in the development of the food sector. Peled added, "In contrast to fashion retailing, in which a retailer's operating profit is in double-digit percentages, a food retailer's profit is very small, and deliveries are liable to incur a loss."
In addition to the center in Holon, the company also has a test center in Tel Aviv, and also plans to open offices in the UK and the US. CommonSense's financing round, led by Playground Global, also featured Aleph VC and Innovation Endeavors, a company controlled by former Google CEO Eric Schmidt, who was also chairperson of Google parent company Alphabet.
The retail sector is being buffeted by the winds of change. Companies are being forced to reinvent themselves and face strong competition in price and shopping experience, with online shopping breathing down their neck, in addition to the possibility that major international players like Amazon will enter Israel. Fashion chains are currently experiencing difficulties in meeting the challenges, which have pushing the Honigman chain into a stay of proceedings.
Given these developments, cooperation with CommonSense is likely to enable Super-Pharm to better cope with one of the greatest challenges in the retail field - order picking. The supermarket chains operating in Israel, for example, still use people to fill orders; they have no automated capabilities for performing order picking efficiently and on a large scale. Shufersal, which recently acquired New-Pharm, is now setting up a computerized logistics center that will use digital order picking methods. Super-Pharm also needs solutions to improve its manual order picking, shorten delivery times, and cut costs.
The emerging cooperation between Super-Pharm and CommonSense is the first time that automation technology is being used to streamline consumer deliveries. In contrast to other technological solutions in the sector, CommonSense's logistics centers focus on storing merchandise for retailers and delivering it straight to the consumer.
In general, the demand for logistics centers in Israel has been rising in recent years, following substantial growth in imports of goods. This situation is affecting the major Israeli food, fashion, and consumer products companies, which need centers in which warehouses and delivery to retailers are concentrated before reaching the end consumer. In this context also, technological solutions for streamlining the supply chain are becoming more and more essential.
Published by Globes [online], Israel business news - www.globes-online.com - on April 9, 2018
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