It will come as no surprise that the food retail industry is rapidly evolving, especially in the area of automation. A few months ago, I attended Redburn’s “The Incumbents’ Response” food retail conference, which provided a fascinating insight on the threat of disruption. It was evident that access to advanced technology and logistics platforms are key to shaping future success. One company driving this move is Ocado.
“The industry needs to act fast to ensure it’s not ‘Amazon-ed’”
Globally, retailers are under pressure. Online penetration continues to grow as technology breaks down old barriers. Whilst grocery has been slower to shift to online relative to other retail categories, the signs are ominous. Since Amazon acquired Wholefoods, strategic priorities have shifted. In conjunction with AmazonFresh, this has inevitably increased competition and customer expectations. As a catalyst for change, the industry needs to act fast to ensure it is not ‘Amazon-ed’.
Avoiding this fate requires capital to be invested in warehousing and technology. Yet this can take years to perfect and the costs will likely squeeze profit margins at a time when the industry is already facing numerous pressures. Alternatively, they can partner with an innovative solutions provider, paying a fee for best-in-class operations.
“Ocado’s recent success emphasises our view that logistics presents a growth opportunity”
Powered by the most advanced levels of automation in online grocery, Ocado’s warehouse logistics model is truly unique. Branded as Ocado Smart Platform (OSP), the company has developed their own artificial intelligence-based algorithm software and robotic-led hardware. Their fulfilment solution sees an army of robots zip autonomously above a three dimension grid, known as “the hive”, completing 50 orders in as little as 5-10 minutes.
Equally as impressive from a software perspective, Ocado can leverage its network to cover data-driven AI and machine learning capabilities. This is integral to the seamless search and order placement on its mobile app. For customers, this means the ordering process become more intuitive, as algorithms help personalise the shopping experience and allows for quicker delivery, driven by smart routing and in-van technology. Ocado has created, in a sense, a recipe for all-round success.
“Ocado has developed their own AI-based software and robotic-led hardware”
Strong logistics capabilities benefit from the growing demand nature of customers as highlighted in our recent thematic article on smart logistics. E-commerce logistic models will redefine physical distribution networks, with huge scope to automate and increase market penetration. Why now? Mostly due to innovation and cost. As the main capital expenditure, robotic costs have fallen as the technology becomes more widely utilised across industries.
Ocado’s recent success emphasises our view that logistics presents a growth opportunity. The company is still in high-growth, investment mode in an environment where innovation can conquer all. After years of waiting, Ocado recently announced two international OSP partnership deals in relatively quick succession, validating its commercial viability. Going forwards, success for the business will likely depend on its ability to continue signing further deals, as its logistics-as-a-service capabilities becomes more recognised globally. In the US alone, there are more than ten urban areas with populations greater than five million people, which represents a considerable market opportunity.
Author Matt Ridley summarised; “Evolution is happening all around us. Change in human institutions, artefacts and habits is incremental, inexorable and inevitable.” However, automation and digitisation of a supply chain represents a tectonic industry shift. Companies focused on e-commerce solutions, may want to think about ordering the future from places like Ocado.