[News Terms] 'CFC', Lotte Shopping's Online Grocery Business Foothold

Inside view of Ocado's automated logistics center (Central Fulfillment Center·CFC). / Photo by Ocado YouTube capture

Lotte Shopping is teaming up with the global retail company 'Ocado' to challenge the number one position in the online grocery market. The key to enhancing Lotte Shopping's online competitiveness is Ocado's developed 'Automated Logistics Center (Central Fulfillment Center·CFC)'. The CFC uses dozens of delivery robots and an artificial intelligence (AI) control system to achieve work efficiency surpassing that of human workers.

On the 1st of this month, Lotte Shopping announced that it signed a partnership agreement to introduce Ocado's integrated solution from the UK. Accordingly, it plans to invest 1 trillion KRW by 2030, installing six Ocado CFCs domestically to achieve sales of 5 trillion KRW. Lotte Shopping will pay for the CFC sites, construction costs, and solution usage fees, while Ocado will provide the robots and other hardware operating inside the CFC, as well as the operational software. Long-term maintenance will also be conducted.

Traditionally, grocery distribution has been known to be difficult to digitize online. Due to the short shelf life of fresh food products, management is challenging, and inventory waste is severe. According to last year's 'Online Penetration Rate by Industry' data released by Statistics Korea, groceries (25.2%) had a significantly lower online order rate compared to cosmetics (39.4%), books (54.8%), and electronics (58.1%). However, Lotte Shopping expects to "leap to become the number one grocery business in Korea" by increasing logistics efficiency through the robot-centered CFC.

Okado CFC manages at least 1,000 picking robots in real-time using artificial intelligence to process customer orders. / Photo by Okado Official Website Capture

Today, various logistics companies are adopting automated systems such as transport robots, but the biggest differentiator of Ocado's CFC is that it has fully automated the 'picking' process (retrieving the exact quantity of products from the logistics center according to customer orders).

The CFC is constructed by installing 3D grid-shaped rails inside the logistics warehouse. Specific grocery products are stored within each grid of the rails. At the top of the rails, Ocado's specially designed 'picking robots' move at a speed of 4 meters per second, selecting products according to orders and transporting the items to the packing workstation.

At least 1,000 robots moving inside the CFC are controlled by AI. This AI is modeled after an airport traffic control system and directs the nearest CFC to fulfill customer orders. In this way, one picking robot processes 50 commands per minute, and a typical-sized logistics warehouse handles 220,000 customer orders per week.

Robot logistics centers are not only more efficient than humans but also more accurate. According to Lotte Shopping, Ocado's solution achieved a 98% on-time delivery rate and a food waste rate of 0.4%, outperforming competitors. The number of product types that one logistics center can handle is twice that of a general logistics center.

Ocado CFC

CFCs are already operating in the global grocery market. In the UK, where Ocado's headquarters are located, the large grocery brand 'Waitrose' rents CFCs for its delivery business. The US retailer 'Kroger' is spending huge construction costs aiming to install 20 CFCs across the United States. Other companies that have adopted the CFC system include France's Casino, Japan's Aeon, and Australia's Coles.

Meanwhile, Ocado is not the only company developing 'robot logistics.' Founded in Norway in 1996, 'AutoStore' developed a robot logistics center that maximizes storage capacity by stacking logistics warehouses in the form of cubic cubes and has supplied over 500 systems to 30 countries worldwide to date.

Coupang's self-developed picking robot unveiled last September / Photo by Coupang Official Website Capture

There are also companies developing picking robots that can operate in general logistics centers without installing grid-shaped or cube-shaped rails. For example, Korea's largest e-commerce company Coupang unveiled its self-developed picking robot last September. This robot reads barcodes attached to the logistics center floor to recognize the location of products and carries hundreds of items to the shelves where packers are located.