Is Ocado Zoom Ready for the US and Canada?
In a conference call this week discussing Ocado Group’s fiscal first-quarter results, its executives received a number of questions about its “need-it-now” service known as Ocado Zoom. In contrast to the Central Fulfillment Centers (CFCs) primarily servicing scheduled next-day delivery, Zoom makes available a smaller range (about 10,000 items) at slightly higher prices and smaller baskets (about 35% to 45%, officials said) than next-day solutions that can be delivered to customers on the same day they order. The first—and still only—Zoom facility in West London is delivering orders in an average of 34 minutes, though officials said they have 12 sites under consideration in England and are in talks with international clients on a commercialized version for them.
Zoom sites are capable of annual sales in the range of 15 million to 25 million British pounds in sales—(about $21 million to $35 million U.S.), CEO Tim Steiner said.
“We've got a commercial proposition that we can market now,” Steiner said, according to a Sentieo transcript. “So we’re talking through a number of our international clients as well as Ocado Retail about building Zoom sites. And the critical thing for us is to build sites that are scalable, that offer long-term estimate, positive economics, both for the client … but also for the Ocado Group in terms of provision of the service. So we want to go out there and help our clients to go out there with the best immediacy proposition.”
Steiner said Zoom sites take advantage of its larger, automated peers by receiving inventory that has picked from them, “so they’re able to have a much more efficient supply chain [and] inbound operation, lower waste, and higher levels of stock availability, which will amount to several hundred basis points of operating cost advantage over an alternative,” such as immediacy offers picked from stores.
Ocado said its revenues grew by 40.4% in the three-month period, marked by effects of a renewed COVID lockdown in the U.K.
The earnings call included a tense moment when a participant levied a barrage of complaints and allegations at Steiner, referencing among other things a data breach, a fire at a facility and “dishonesty” from executives. “We disagree with pretty much everything you've just said,” Steiner replied, before moving to another question.
Green deliveries with Ocado Zoom 💚 Great to see our delivery vehicles featured by TfL as we work towards a greener future! #westlondon #deliveredinajiffy https://t.co/3UtSVFExnY
— Ocado Zoom (@OcadoZoom) March 11, 2021
Meanwhile in the US giant Kroger, all eyes are on the soon-to-open CFC in Monroe, Ohio as an important milestone in its partnership with Ocado. CEO Rodney McMullen says:
“The Monroe CFC is a key step in our continued acceleration of our expansion to our national supply chain network to redefine the customer experience…We are looking forward to the opening of our next CFC after this one, in Groveland, Florida. It enables us to expand our footprint, enter a new market and serve even more customers.
We continue to invest and improve our e-commerce capabilities, focusing on cost-effective solutions. We've also built flexibility into the fulfillment ecosystem, which will be comprised of large CFCs like Monroe and Groveland, but also smaller and medium-sized sites as well. This will allow us to maximize penetration across all of our diverse markets.”
Size matters - or it will
McMullen’s reference to different sizes of CFCs is an important one when considering future retail fulfillment strategies. Size is going to matter. By the end of this calendar year, Ocado’s schedule is to have 7 retail partners around the world up and running on the OSP, while getting CFCs opening up, says Luke Jensen, Chief Executive of Ocado Solutions:
“2021 will be another stepping stone in the deployment of CFC capacity ahead of a strong acceleration in 2022. We now have a staggering 17 CFCs under construction worldwide. [This year] will also mark the next steps in the development of the unique OSP ecosystem, allowing our partners to achieve maximum market penetration with the best economics.
In addition to offering our partners the most advantaged economics and range proposition with standard CFCs, smaller formats like mini-FCs or micro-FCs will allow to maximize customer reach and market penetration while in-store fulfillment allows rapid response to market demand and allows to reach low-density geographies. In addition to this unique breadth of offering, OSP also leverages unique technology advantages across fulfillment methods, like the ability, for example, to replenish small CFCs from larger ones. With OSP, we'll offer our partners the best performance across every single fulfillment method.”
The smaller CFCs are a interesting development reflecting the ‘need for speed’ in an increasingly busy future market. Same day delivery or delivery with even shorter time frames is only going to be possible if inventory can be brought physically ever closer to the customer. Giant CFCs are crucial for the wider service enablement, but getting local is the key to faster delivery times. That means ensuring the mini-CFC concept is done correctly is crucial. Jensen explains:
“What we've done with mini-CFCs is we've taken the technology that was developed for large CFCs, and we've managed to take it into a smaller footprint, say, £150 million of sales. This has the big advantage of being able to bring the full advantage of OSP technology to smaller catchment [areas]. Those would have previously been served through a spoke from a bigger site or through in-store fulfillment. What that means is it means customer benefits of shorter lead times and also economic benefits of the new formats.”
And it’s possible to think even smaller, he adds, with micro-fulfillment centers (MFCs), used to support Ocado’s embryonic Zoom proposition. Zoom is a same day delivery service, first piloted in 2019 in one small part of London, allowing shoppers within a certain distance to place orders that can be delivered, in some cases, within an hour. That site is now being joined by a second one in an undisclosed area, with a further dozen prospects being scoped out within London. Jensen says:
“Ocado Zoom has continued to demonstrate the opportunity to increase market penetration by serving ultra-immediacy demand within one hour. While larger planned shopping will always be most effectively served from larger formats, we see MFCs as a great opportunity to increase share of wallet and customer loyalty. Think of it as the convenience store of online retailing. “
In all this, stores won’t entirely go away, he adds, so in-store fulfillment needs to be factored into strategic thinking:
“In-store fulfillment brings maximum flexibility to reach low-density catchments and to respond to short-term changes in demand. This is always going to be an important part of the platform in geographies like Australia or Sweden, where you have that mix of concentrated urban catchments with low-density large tracks of country. But what it has also proven highly effective for is responding this year, with Morrisons [supermarket chain], to the increased demand from COVID in the UK, by rolling it out in just a few months across the nation. By the end of 2021, we'll be live with in-store fulfillment with 5 partners and in more than 1,000 stores.”
The Ocado service remains impressive. Tracking the progress of the likes of Kroger and Sobeys is going to provide some useful insight into how replicable this UK service level is. All the CRM tech in the world doesn’t mean you provide good customer service if your organizations isn’t set up to do so. The same may or may not be true of retailers and omni-channel enablement tech - a topic to be revisited later in the year.
Consumer patterns will still vary around the world of course. In the US, retailer-operated delivery services are far more nascent than in the UK, while click-and-collect and curbside fulfillment are more predominant. How that balance shifts is an unknown variable and will depend on local conditions. Where I live, click-and-collect or curbside pick-up for a weekly grocery shop wouldn’t work, thanks to parking and loading restrictions, whereas in the US it’s far more feasible. Hence, delivery is far more likely to be the preferred option in the UK and large parts of Europe, while in the US and Canada, expect more fulfillment choices to be required.
But whatever happens, COVID has made the case for online grocery capabilities to become a must have around the world, not just a nice-to-have, a case of digital disruption through necessity. The future lies this way.
