Is micro-fulfillment a dead concept or one that still has legs? That’s the question Anne and I posed to our guests from Transcend Retail Solutions and Dematic in our latest Omni Talk Spotlight Series podcast.
The timing couldn’t be more relevant. After nearly a decade of conversation around MFCs (or UFCs as Tesco likes to call them – “urban fulfillment centers”), we’ve seen high-profile failures like Takeoff Technologies shutting down shop.
But there’s more to the story than these headline-grabbing closures.
The State of Micro-Fulfillment in 2025
Let’s cut to the chase – micro-fulfillment isn’t dead. It’s just been misunderstood.
As Danielle Dakin, Market Development Director at Dematic, explained, “While there have been some failures in the market, there have also been successes, and Tesco is a prime example.” She notes that the post-COVID e-grocery market is projected to grow by about 3.8% in North America through 2029, with competition heating up between traditional grocers and discounters.
The reality? Many retailers jumped on the MFC bandwagon during COVID when online order volumes spiked (remember that five years of growth in mere months?). As volumes normalized and consumer behaviors settled, some found their investments didn’t match their actual needs.
What Makes MFCs Work?
Dr. Oliver Vogt, CEO of Transcend Retail Solutions (Tesco’s play to take its MFC expertise to market), dropped some serious knowledge bombs during our conversation.
First, he gave us the magic number: 500 orders per day is generally the threshold where MFCs start making financial sense. But volume alone isn’t enough.
According to Oliver, successful MFC implementation requires four puzzle pieces to come together:
- Automation – The hardware itself (obviously)
- Processes – Retail-specific operations like waste management, inventory, replenishment, etc.
- Software – Decision-making tools and insights to manage the operation
- People – Often forgotten, but crucial for actually running these systems
“Automation is one piece of the puzzle,” Oliver emphasized. “If you don’t have the right processes behind it… you’re missing another piece.”
The Hybrid Approach Wins
What surprised me most was learning that even Tesco, with its advanced automation capabilities, still picks about 85% of all their online order volume manually in stores. This hybrid approach is deliberate.
Oliver explained that MFCs sit in the sweet spot between manual store picking and large automated warehouses. “It’s a nice hybrid,” Oliver told us.
Unlike massive automated warehouses (hello, Ocado), MFCs allow grocers to:
- Stay closer to customers for faster delivery
- Reduce last-mile delivery costs
- Maintain flexibility as volumes grow
- Start with smaller capital outlays
- Scale module by module
The US Opportunity
But will MFCs really work better in the US than other automated solutions that have come before it (looking at you, Kroger-Ocado partnership)?
Oliver believes the US geography and household density actually lend themselves well to smaller, distributed fulfillment nodes rather than massive centralized warehouses. “By the household density, by the way the US is built, micro-fulfillment as a general topic is going to have a revival,” he predicted.
With labor costs rising and availability becoming an increasing challenge, the business case for MFCs continues to improve. Danielle noted that Dematic’s technology can help grocers achieve pick rates of up to 700 items per hour (compared to about 190 items per hour for manual picking), dramatically improving productivity.
My Take
Look, I’ve watched the e-grocery fulfillment space evolve for nearly a decade, and what’s clear is that there’s no one-size-fits-all solution. MFCs were overhyped, then written off too quickly. The reality is somewhere in between.
What Tesco and Dematic bring to the table is something different – not just hardware, but a full operational solution built on hard-won experience. As Oliver put it: “We want to make sure no one else has to go through the same pain and want to share what we’ve learned.”
The key insight for executives? Don’t think about MFCs as binary “yes or no” investments. Instead, ask where they might fit within your broader fulfillment network based on your specific market conditions, order volumes, and customer expectations.
And for those skeptical about whether these systems really work, Danielle offered this closing thought: “The proof of the pudding is always in the eating… go and see the sites that Tesco has operating.”
Anne and I just might take them up on that offer during our upcoming London trip. Stay tuned.
About the Author
Chris WaltonChris Walton is the Co-CEO of Omni Talk and the former Vice President of Target’s Store of the Future project. He is recognized as one of the top retail experts globally, with deep insights into innovation, digital transformation, and modern commerce strategies.
Omni Talk® is the retail blog for retailers, written by retailers. Chris Walton and Anne Mezzenga founded Omni Talk® in 2017 and have quickly turned it into one of the fastest growing blogs in retail.