Ocado Solutions Platform: Powering Global Online Grocery

I was working for IBM in France and, actually, I was part of a team of global retail experts providing consulting and advice to the C-suites of retailers across the globe. I did lots of work for a major French grocery chain that does business in Western Europe, Eastern Europe and Asia. I was back from a trip to Taiwan and it was the middle of the summer and I got a call from a headhunter. They asked if I would consider relocating to London. I said, yes; what do you have to offer? They said would you want to work for Ocado? I said, let’s have the conversation because I remember some years ago when Ocado announced that they were expanding from being an online grocer to being a solutions provider, I thought that was super interesting. I want to work for these guys one day.

I got the call, got into a conversation and eventually got an offer after an interview with Tim Steiner in London. I was so impressed by the guy. The conversation I had with him was so interesting; the passion, the risk-taking, the creativity was just amazing so I decided to move to the UK and take the job.

The vision, but it took me a while to understand after I had been in the job that Ocado was not about online grocery. This is not a retail company and I shouldn’t say this – because now that they are in a JV with Marks & Spencer, you may argue that they are a retailer – but to me, their strength was not in having a super-good buyers department, knowing retail, understanding customer acquisition, customer retention; this was not about being a retailer. I think their strength is actually in how they invented and created technology for online grocery fulfilment.

The people who started Ocado were three traders with Goldman Sachs. They didn’t have any retail experience which actually was super good and they didn’t have any physical stores. They started as a pure online player so they didn’t have the burden of physical stores and having a store estate portfolio that you need to leverage when you move on to online grocery.

Basically, what they did was, they launched a customer proposition of online grocery, home delivery, seven days a week from 05:30 to 23:30. It was a super-good customer proposition and then they realized that you needed to automate the fulfilment of the orders. The way people have shopped on Ocado, I would say, for the first 15 to 18 years, is that people would do their weekly shop on the Ocado website; so typically, people would order, on average, 48 items. They would typically order on a Thursday night for delivery on Friday night. So the frequency of an order was once a week, 48 items. The core customer is a family with young kids, too busy to go shopping. 48 items is a lot of items when it comes to fulfilment because, if you look at non-food ecommerce, the average number of items per basket is between two and three beating consumer electronics, cosmetics – which I know very well because I launched ecommerce for Sephora many years ago – clothing, home furnishings; the number of items per order is two to three.

In online grocery, in the case of Ocado, it’s 48 items. That’s lots of labor and because it’s lots of labor, it’s lots of pounds. So from the very beginning, Ocado looked at how to put automation in the preparation of online grocery orders. I would say that, at some point when I was in the job, I realized that this was not a retailer; this was an engineering company. When I say engineering, I’m talking about software engineering. Lots of people do software development and they do software development, but they are a mechanical engineering company. Then you mix the software with the automation and you get that end-to-end solution that I was selling to grocers across the globe.

One thing you need to know is that, at some point, about five, six years ago Ocado actually looked at venturing out of the UK, so they looked at launching Ocado Netherlands. They looked at launching Ocado France. They looked at launching Ocado California and then they realized that being a grocer in many countries was super complicated. We know that the margins are what they are in grocery, but it’s super complicated because each country is slightly different in terms of shopping habits, shopping patterns, ways of cooking, ways of eating.

For example, if you look at the UK, the share of frozen food is rather tiny when it comes to your average weekly shop. Whereas in countries like Korea, frozen food is super important. There was no intention of launching into Korea, but I’m giving that example to show how different grocery shopping patterns can be.

Eventually, Ocado decided not to launch in the Netherlands, not to launch in France, not to launch in California. Instead, they realized that they had this asset, that they had developed this combination of software and warehouse automation and that it was a much better idea to become a technology company where the margins and valuations are much higher.