Ocado shakes up grocery retailing – it hopes

Ocado truck. Photo: Dreamstime
Ocado's fully automated warehouses are not open to journalist (no way), but Tim Steiner still run traditional trailers and trucks. Is that good enough to make e-commerce competitive? Probably not. Transport must also be automated.
By Reidar Molthe

22 November 2019 12:46

Ocado shakes up grocery retailing – it hopes

Tim Steiner, the co-founder of Ocado Ltd., has ambitions to shake up the British and international retail sector with the online company Ocado.

No one has fully mastered the art of selling groceries online. Online represents just 2.3%, or $160bn, of a worldwide grocery market of $7trn.

As that share rises, as it will surely continue to, it could be life or death for some in the industry, writes The Economist, a recognized journal of economics and politics.

However, Lidl and Aldi have done more to disrupt the UK market then the online ambitions of Ocado, a company selling knowhow in automated warehousing.

No success in Norway

Also, in Norway many have tried to make money on online groceries, but no one has succeeded.

Rema 1000 burned hundreds of millions 15 years ago before they totally gave it up – until they recently bought shares in Kolonial.no to relearn the online business.

The tycoon Stein Erik Hagen and his company Marked.no, lost an estimated NOK 300 million before Hagen closed the company after two years.

The big question

Kolonial.no and CEO Karl Munthe-Kaas are losing money on every single sale and the company is still relying on patient shareholders to survive.

As Tim Steiner, Karl Munthe-Kaas is an earlier Mckinsey consultant. They are normally clever and smart consultants, but can they turn enough customers from brick & mortar to e-commerce? That is the multibillion question.

The other online provider with some size in Norway is Meny, that runs its operation using local stores both as storage-, and pick-up solution. Though the numbers are not public, this operation also has shown to be very costly.

In sum, no one in Scandinavia earns money on online grocery shopping. Skeptics have good reasons to be negative, but Ocado and many others believe in e-commerce.

In the end it is a question about finding an efficient logistic solution. It is a question about covering the added costs of picking and delivery at the door compared to supermarkets where the customers do the picking and transport for free.

Ocado's fully automated warehouses are not open to journalist (no way), but Tim Steiner still run traditional trailers and trucks. Is that good enough to make e-commerce competitive? Probably not. Transport must also be automated.

Stock rocket drops deep

Though Ocado has more than tripled in value in the past two years to £7.5bn ($9.6bn), its share price has plunged recently, and the battle to dominate online groceries remains wide open.

In US online grocery shopping is not more then 1.6 percent of the total turnover.

In China, which paradoxally have the most developed e-commerce market in the world; it is about 4 percent, according to Nielsen, a consultancy specialized in groceries.

M&S invests heavily

Earlier this year Mr. Steiner persuaded Marks & Spencer, a British retailer, to pay £750m for a half of Ocado’s domestic online-grocery business. The money is helping Ocado to investigate more lucrative international businesses. For example, selling know-how to the retail giants like US based Kroger and Swedish ICA.

The biggest deal so far is with Kroger. The American supermarket chain aims to order 20 Ocado customer fulfilment centers by 2021, far more than the meager four that Ocado has so far erected in Britain and the two planned in Sweden.

Kroger’s sheds (Kroger calls the fulfillment centers for sheds), which may take up to five years to complete, give a sense of the emerging battle. We are talking about big super-electronic, robotized warehouses up to 33,000 square meters. They will sit on the edge of cities and Ocado aims to make up for the long drives to deliver groceries by speeding up its robots.

Rivals are making existing shops the core of their online operations, either for picking up orders or delivering them. Close by will be micro-fulfilment centers, which will seek to imitate Ocado’s efficiency, but cut down on travel times.  The most famous model is of course Walmart, which named sharp growth in online grocery from its supercenters in America as a reason for higher sales this summer.

China is high tech

Alibaba’s high-tech Hema supermarkets in China are more cutting-edge still. They use QR-codes on fish to validate freshness, enable app-based shopping, have plenty of robots and offer 30-minute delivery within a small radius!

Yet it is unclear if Hema’s technology will succeed where armies of cheap labour, ready to sort, pick and deliver groceries, have mostly failed.

No relationship in retail is as intense as that of shoppers with their supermarket. Few firms have invested as much in online shopping as Ocado. If things do not work out, at least the Kroger and ICA deals has made Mr. Steiner a very rich man.

Sources: The Economist, Nielsen, NHH, ICA

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