Ocado rumored to be developing Micro-Fulfillment Technology
The scramble to build online sales
Key Points:
Ocado brings a technological perspective to grocery delivery – focusing on robotics and automation.
Ocado’s ‘hive’ style fulfilment centres have revolutionised grocery shopping in Europe.
Ocado believes its cube based robotic picking system is best suited for in-store micro-fulfillment centers (MFC).
The world market for micro-fulfillment centers in the next seven years is estimated to be in the billions.
Ocado has developed multiple fly-wheels which propel unit economics and drive customer value.
Current MFC market leaders with most installed sites, stumbled during the pandemic and will not allow peer reviews of its automated system.
Competitors from India and China are about to enter the MFC market with solutions which will cost half compared to the current MFC offerings.
Start-up date of 2021 could be too late for Kroger’s first Ocado automated fulfillment center.
About Ocado
Ocado’s founder, Tim Steiner, has proven to be an industry visionary. He has revolutionised grocery shopping by building a platform which enables profitable delivery to the customer’s home. He has persevered in his mission to build a scalable platform and offer a solutions-based service for grocery companies globally to replicate. Fulfilling this mission has taken 20 years and investors are strategically aligned with Steiner’s capital allocation process and his commitment to innovation, which is poised to drive many years, even decades, of future growth.
“Steiner clearly thinks there are more gains to be wrung out of the post-pandemic retail landscape. Mindful of the accelerating switch from buying food in stores to simply clicking a mouse or tapping on a smartphone, its online partners around the world, such as U.S. grocer Kroger Co., may want to attack the online grocery market even faster. Ocado also anticipates a surge of interest from other big international supermarkets wanting to use its automated warehouses.”
Clive Black, head of research at investment bank Shore Capital, said the company was taking advantage of its high share price to meet its heavy cash needs. Ocado shares have risen in value by 38% since the start of 2020, giving it a market value of £14.6bn when markets closed on Wednesday before the fundraising announcement.
“The company’s fundraising has preempted a possible spate of new agreements with grocers around the world, tantalized by the prospect of more online shopping, and put an extra billion pounds into its coffers. If Steiner doesn’t use this wisely, he won’t be able to win over shareholders so easily next time around. ”
About Kroger
Kroger is more than 2 years into a 3-year strategic plan, dubbed Restock Kroger, which includes improvements in ecommerce capabilities, among other initiatives. Kroger continues to invest in its digital capabilities Gary Millerchip, Kroger’s chief financial officer, said during a June 18 call.
Customers’ changing habits during the pandemic have added new urgency for US grocer Kroger to accelerate its online grocery business efforts. Kroger’s digital sales grew by 92% in the fiscal first quarter, which ended May 23. However, shares were down nearly 6% in trading Thursday.
Other grocers have also had strong sales and gains in online shopping during the pandemic. Walmart’s same-store sales grew by 10% and its digital sales rose by 74% in its fiscal first quarter. Stop & Shop parent company Ahold Delhaize’s U.S. same-store sales, excluding gas, grew by 13.8% and the company said it was accelerating its digital investments, even as it pulled back on other capital spending.
“Kroger’s risk is that if they don’t optimize their business for the incredibly digital customer-centric world we all live in they will get passed and won’t be relevant”
With its online business, Kroger has several challenges, Bernstein said. It’s relied on Instacart for many of its grocery deliveries, which makes it harder to build customer loyalty and gain insights that help it personalize offers and manage inventory, he said. According to the firm’s preliminary research, it has a higher rate of substitutions and unfulfilled line items than rivals Walmart, Amazon and Target. That hurts the customer experience and lowers total sales.
Last week Kroger’s CEO, Rodney McMullen acknowledged another challenge that Kroger faces with e-commerce: Making it more profitable. When a customer switches to online grocery shopping, he said, it typically takes three to four years before that customers profitability is the same as if they had shopped in the store. Once they become an online grocery shopper at Kroger, however, the company gets “a significantly higher share of that customers’ total household spend,” he said.
Starting in 2021, Kroger is planning to “turbocharge” its online business with new Ocado high-tech robotic technology across the US. The first facility is to open in a suburb of Cincinnati.
Across the Pond with Ocado
Across the pond, UK’s online delivery and technology company Ocado has announced a $1.3 billion sale of new company shares and a bond offering. The company said it decided to look for additional funds because it sees an opportunity for growth as the grocers it partners with position themselves to meet rising demand from online grocery customers. Ocado “believes that the COVID-19 pandemic is providing the catalyst for its existing … partners to accelerate their online delivery plans,” the company said in a statement.
“Ocado Better Use Its $1.3 Billion Windfall Wisely
The online grocery trailblazer is preparing for the post-pandemic retail landscape.”
Ocado has concluded that the increase in grocery e-commerce sparked by the pandemic is causing a “permanent redrawing of the landscape of the grocery industry worldwide” and presenting it with a “huge” opportunity to grow its revenue, according to a presentation the company prepared for investors.
“When lockdown hit at Ocado, all our researchers headed home and used the simulation environment to continue research. That included taking 3D printers home with them. We’ve been able to carry on our research largely uninterrupted”
“The excitement around online shopping has also elevated Ocado’s share price, from around 13 pounds at the start of the year to more than 20 pounds before the fundraising announced late Wednesday. The company is right to take advantage of these factors while it can, because they may not be around forever.”
As Ocado continued its research into automation and robotics during the pandemic using several advanced digital tools, there are inside rumors that Ocado could be announcing a newly developed micro-fulfillment solution for instore or “dark store” applications. This new technology will be first offered to their existing US partner Kroger Co.
The problem with taking the existing Ocado robotic technology to the store level is reducing the implementation costs of the automation and software controls. The current ROI for each Ocado system requires a significant capital investment and needs to be depreciated over many years. If Ocado is successful in launching a new “micro” version of its current technology, it would give the company the ability to offer a very dependable robotic and software system with rapid deployment options to grocery and meals companies across the US and Canada.
“I believe more could have been done to deploy smart robotics in response to the pandemic – not just for supermarkets – in terms of using drones to deliver the “last mile”. but also in the manufacturing of PPE and sending robots into places not safe for humans. I think there is more we could have done to prepare and now we must do that going forward.”
Sources: https://www.thetimes.co.uk/article/ocado-model-fails-to-work-in-a-crisis-leaving-the-big-supermarkets-to-clean-up-nq5xx5g82
