Anticipating the Future of Grocery
Amazon’s acquisition of Whole Foods reiterated the threat that e-commerce poses to brick-and-mortar grocery retailers, but one company has been trying to anticipate this threat for almost twenty years.
Founded in 2000, UK-based Ocado is “the world’s largest dedicated online grocery retailer,” and their mission is to deliver “the best shopping experience in terms of service, range, and price.” Ocado’s ability to do so hinges on the digitalization of their supply chain, which leverages automation, proprietary technology, and the aggregation of scale using large warehouses called Customer Fulfillment Centres (CFCs)s. Every activity carried out in these CFCs runs on data:
Receiving and stocking inventory: When inventory arrives, Ocado’s computers use data to predict what stock will be needed and when, so that they can direct a human-operated crane to organize these pallets in the most efficient manner possible.
Picking: When picking items for customer orders, the picker does not have to worry about deciding the best way to place items in each bag – the computers have learned how to avoid suboptimal outcomes like putting bleach next to meat and guide the picker accordingly.
Delivery: To create the most efficient delivery schedule, Ocado relies on data from past deliveries. Ocada tracks each van’s GPS, fuel usage, acceleration, braking, and even “dwell time” in front of a customer’s house.
Given their first mover advantage, why should Ocado be concerned about this megatrend? The answer, in short, is competition. Already dominated by established competitors like Tesco, Sainsbury’s, Marks & Spencer, and ASDA, the UK grocery industry is becoming increasingly crowded with the introduction of discount retailers like Aldi and Lidl, and e-commerce giants like Amazon. In an industry with notoriously low margins, success depends on one’s ability to maximize efficiency. Thus Ocado is facing a situation wherein a number of hungry and aggressive competitors are looking to invest in their supply chains and eliminate Ocado’s competitive edge.
One of Ocado’s ongoing strategies is to monetize their IP. Companies who lack the resources to digitalize their supply chains can purchase Ocado’s proprietary end-to-end solution, the Ocado Smart Platform. This strategy is having limited success. As of this time, only two companies – grocery retailer Morrison’s and garden center business Dobbies – have partnered with Ocado.
Ocado’s long-term strategy is to double down on their technology and automate as many of their processes as possible. This strategy reflects their confidence that these investments will reap long-term efficiency and cost-cutting benefits that outweigh the initial costs. Some of the projects in development include the following:
- A robotic hand that that can sense and handle a wide variety of products (e.g. everything from a six-pack of Evian to a single orange).
- A fleet of driverless delivery vehicles.
- Humanoid robots that help engineers carry out repairs and access dangerous areas.
- A warehouse “staffed” almost entirely by robots.
Ocado’s decision to double down on their innovation is having a negative impact on their bottom line. Their financial results for the first-half of 2017 reveal an almost 20% decline in profits accompanied by a substantial increase in debt.
It is hard to predict when Ocado’s investments will pay off. For Ocado to reap the benefits, they need to stay in business. My recommendation for Ocado is to shift their focus to activities that bring in revenue. They need to grow their top line by increasing the customer base and their basket size. They also need to be very selective about their investments and take on only those projects that will lead to customer growth and satisfaction. Otherwise, they may fall prey to investing in technology just for the sake of investing in technology.
What do you think of Ocado’s strategy to help others digitalize their supply chains? How will they stay competitive if they are giving other companies access to their proprietary technology?
 Ocado, “At a Glance,” http://www.ocadogroup.com/who-we-are/ocado-at-a-glance.aspx, accessed November 2017.
 Ocado, “Strategic Objectives,” http://www.ocadogroup.com/who-we-are/strategic-objectives.aspx, accessed November 2017.
 James O’Malley, “Inside Ocado: Discover the Hidden Robotic Intelligence Behind Your Online Shopping,” Gizmodo, February 7, 2017, [http://www.gizmodo.co.uk/2017/02/inside-ocado-discover-the-hidden-robotic-intelligence-behind-your-online-shopping/], accessed November 2017.
 Jack Torrance, “What does the future hold for Ocado?”, Management Today, July 5, 2017, [http://www.managementtoday.co.uk/does-future-hold-ocado/future-business/article/1438659], accessed November 2017.
 Emma Weinbren, “Dobbies strikes five-year deal with Ocado,” The Grocer, May 2, 2017, via LexisNexis Academic, accessed November 2017.
 Ben Rossi, “How Ocado plans to lead the Fourth Industrial Revolution,” Information Age, March 24, 2017, [http://www.information-age.com/ocado-plans-lead-fourth-industrial-revolution-123465260/], accessed November 2017.
 Jon Excell, “Roboshop: grocery 4.0.,” Engineer (00137758), March 2017, 297, 7885, pp. 27-28, Business Source Complete, EBSCO, accessed November 2017.
 Dan Worth, “Ocado’s Robot Army,” Computing, March 2016, pp. 36-37, Advanced Technologies & Aerospace Database, accessed November 2017.
 Emma Weinbren, “Ocado: Amazon-Whole Foods deal ‘boosts us,’” The Grocer, July 8, 2017, via LexisNexis Academic, accessed November 2017.