On the 7th, at Lotte Mart's "Zetta Smart Center Busan." Stepping into the refrigerated-goods storage, grid-shaped rail equipment reminiscent of a giant Go board densely filled the space. Each cell held a variety of products, from fresh foods such as vegetables and fruit to assorted beverages. Hundreds of picking robots, designed to the grid's specifications, busily shuttled along the rails like giant claw machines, grabbing items and moving them to the shipping area.
Opening the heavy steel door and entering the frozen-goods storage, air at minus 25 degrees enveloped the body. Even in the extreme cold, the picking robots kept moving along the rails without pause, carrying frozen products. It was hard to find workers in the product storage area, and only a few engineers were checking for system abnormalities from outside the warehouse.
Lee Hyeong-seok, head of development and operations at Lotte Mart's customer fulfillment center (CFC), said, "The center covers about 12,000 pyeong, but only a little over 300 people are stationed here," adding, "Except for some processes such as inbounding and final packing, up to 1,000 robots handle most tasks."
Zetta Smart Center Busan is Lotte Mart's first CFC built after it partnered with Ocado in Nov. 2022, investing about 200 billion won. Ground broke in Dec. 2023, construction took about 20 months, it was completed in Aug. last year, and after finishing integrated tests by July this year, it recently went into full operation.
Lotte Mart moved to build a large-scale automated logistics center to fix chronic inconveniences in online grocery shopping. Jeong Jae-u, head of Lotte Mart's online business unit, said, "In online grocery shopping, customers still complain about issues like wilted vegetables and late deliveries," adding, "We judged that if we solve the three challenges of fresh food quality, missing items, and deliveries at desired times, we have a good shot in the online grocery market."
The center is the first in Korea to adopt Ocado's integrated solution, the "Ocado Smart Platform (OSP)." Up to 1,000 robots travel over the grid-shaped facility called the "grid" to transport items, and artificial intelligence (AI) predicts demand and optimizes everything from product placement to picking, packing, shipping, and delivery routes.
The change consumers will feel most directly is delivery. Targeting 4 million households in Busan and the Yeongnam region, Lotte Mart increased daily delivery runs from about three to as many as 13. As a result, Lotte Mart Zetta users can choose desired delivery slots in 2- to 3-hour increments from early morning to evening.
The product assortment also expanded far beyond that of a typical big-box store. The center can handle up to 35,000 items, about 10,000 more than a regular Lotte Mart store. Among these, chilled and frozen items number around 10,000, and frozen items alone run up to 4,000. Considering a typical big-box store carries about 1,700 frozen foods, that is more than double.
Temperature control, the core of fresh food competitiveness, was also strengthened. Chilled and frozen products are managed separately from ambient products from inbound at the center through delivery. Cha Woo-cheol, head of Lotte Mart and Super, said, "We built a complete cold chain (low-temperature distribution system) rarely seen at other logistics centers," emphasizing, "We can keep fresh food quality consistent from inbound to customer delivery."
Lotte Mart plans to start with Busan and Changwon–Gimhae and secure separate delivery hubs next year to expand service to Daegu and Ulsan. It also broke ground on a second smart center in Goyang, Gyeonggi Province, last year to meet online grocery demand in Gyeonggi and the greater Seoul area.
Zetta Smart Center is also a test bed for the success or failure of Lotte Mart's online grocery business. Online grocery delivery is known as a business where high labor and logistics costs make profitability difficult. Lotte Mart expects individual CFCs to turn positive on an EBITDA basis in their fifth year of operation and to swing to operating profit in the sixth year.
Lotte Mart's strategy is to differentiate from competitors by combining more than 30 years of fresh food sourcing capabilities with Ocado's automation technology. Director General Jeong said, "For more than 30 years, Lotte Mart has worked with production areas nationwide and built up fresh food procurement capabilities," adding, "Compared with e-commerce companies such as Coupang and Kurly, we believe we have ample competitive advantages."
Cha said, "Zetta Smart Center Busan is a next-generation online logistics center that combines Lotte Mart's fresh food know-how with Ocado's AI robot logistics technology," adding, "We will change the paradigm of online grocery shopping in Korea by delivering the freshness of production areas on time to 4 million households in Busan and the Yeongnam region."