Ocado and Deliveroo Set to Clash in Same-Day Grocery Delivery Showdown
Ocado bets on shopping ‘fad’ to win back customers - Fierce pressure from M&S sees the online grocer scrambling for a turnaround
As Britain started to emerge from lockdowns in the middle of 2021, Ocado was riding high.
The grocery sector was changed “for good” by the pandemic, boasted the online supermarket’s chief executive, Tim Steiner.
Not only were at-home deliveries more convenient, but Steiner believed they were also safer as customers shopping online were less likely to catch “anything nasty”, even once Covid was under control.
However, despite his confidence, the retail boss made no secret of his reservations about ultra-fast same-day deliveries, which he viewed as a “fad” set to fizzle out.
“People plan their lives,” he said in July 2021. “They’re not going to swap a 55-item weekly basket for 20 shops of two or three items coming three times a day. That’s just not how people are going to behave.
“It’s an interesting sector – but it just isn’t going to be as big.”
Now, two years later, it is an area the online grocer is turning its attention to as it faces fierce pressure from part-owner Marks & Spencer to start showing signs of a turnaround.
Critics may argue that Ocado should have moved sooner, after a major push by delivery apps Deliveroo and Uber Eats into grocery.
The boss of the former, Will Shu, earlier this year hailed it as a “huge growth area” for his app, which he said had overtaken Ocado for the number of grocery deliveries per week.
Deliveroo founder Will Shu has hailed the move into grocery as a ‘huge growth area’
Will Shu, who started Deliveroo Holdings Plc after resorting to late-night supermarket trips for his dinner while working at Morgan Stanley’s London office.
At the same time, last month, Ocado Retail – the online grocer which is a joint venture between Ocado Group and M&S – revealed earnings nosedived in the six months to the end of May, falling from a £31m profit a year earlier to a £2.5m loss.
Within M&S, executives have not been shy to show their frustration. Chairman Archie Norman last month told investors he was “not happy” with the business, stressing there is “work to do” to improve its performance.
Concerns were echoed by Ocado’s Steiner, who said it was “disappointing” that the supermarket was not where the two partners wanted it to be.
The challenge of how to turn the business around has fallen to Hannah Gibson, who took over Ocado Retail last September with a long to-do list.
For Gibson, same-day delivery is understood to be an area where she sees clear room for improvement. The focus should not come as a surprise, given Gibson was instrumental in the development of Ocado-owned rapid delivery app Zoom.
Hannah Gibson, the former chief product officer for Ocado’s technology division, has taken over the helm from Mel Smith, who announced she would step down in July.
As it stands, the online grocer currently allows same-day delivery options in most locations across the UK but availability is limited to a few thousand each week.
The plan now is to expand Ocado’s same-day capabilities by creating more slots for customers.
M&S insiders are watching closely, cautious that the economics around rapid delivery have so far failed to add up.
To make same-day work, one M&S source says, operators either need to sell at premium prices or sell larger orders, with the race not so much for market share but to find a suitable operating model.
Deliveroo, for example, has not been able to turn a profit in the 10 years since its launch. It is now increasingly focused on grocery deliveries and has signed deals with Sainsbury’s, Co-op and Waitrose.
The delivery app has hailed this change in strategy a success after moving ahead of Ocado in the number of weekly deliveries.
Unsurprisingly, this is something the grocer is urgently looking to reverse but profitability will be key.
It is thought its focus will be on getting shoppers to order larger deliveries for same-day slots, rather than just last-minute ingredients which are typically sold on delivery apps.
Andy Adcock, a retail veteran and former food managing director at M&S, says that Ocado’s shift to same-day could mean local convenience stores lose out.
But he does not believe this will impact M&S food halls as its customers are “very much same-day shoppers anyway”.
“M&S has the best coverage, relatively speaking, of all of the retailers in terms of travel locations,” Adcock says. “They’ve also got the added bonus that Ocado should be the most efficient, rapid delivery operator in the UK.”
For now, there are obvious challenges in how to make same-day delivery work across the UK, particularly with higher fuel costs and price sensitivity among shoppers.
But it seems Gibson is putting the pieces in place to make sure Ocado will be ahead of the pack for a change she sees rapidly coming down the line.
The message from M&S was that there is “work to do” at Ocado. Gibson is getting stuck in.
