Ocado Solutions Platform: Powering Global Online Grocery

Can you provide some background to your experience and role at Ocado Solutions?

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.

What was so exciting about that conversation?

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.

This is the story of how Ocado Solutions came to life, and then the guys who were running the Ocado grocery business were trying to sell these solutions as well. They were trying to sell these solutions to big grocery retailers across the globe. It was going kind of okay, but they didn’t have the retail culture to engage into conversations with the C-suite of retailers. So eventually, they hired Luke Jensen, who was running Sainsbury’s ecommerce, to come and run Ocado Solutions. Luke has been able to enter into this dialogue with grocery retailers because he had this background of running online for a traditional, legacy grocer. That was the first thing that really helped Ocado Solutions to do deals with grocery retailers.

Then the second big event that helped Ocado Solutions significantly, was what happened on June 16th of 2017. I remember, I was doing a presentation for a grocer in Kiev in Ukraine and I had to stop because I saw on my cellphone that Amazon was acquiring Whole Foods. There was a panic among legacy grocers that they needed to go online. The last six months have been another super moment for Ocado Solutions because of COVID. We know that, all over the world, grocery stores were still open but it became very scary to go shopping for groceries. Ocado Solutions is having another moment where everybody now understands – they understood on June 16th 2017 but they understand even better now – that they now seriously need to switch to online.

Can we walk through that process? Let’s say I’m Ocado selling the solution to you, as a grocer. What is the decision you have to make between choosing the Ocado Smart Platform versus alternatives?

I would say that the sales process of such a solution is very long. It’s very long, because it’s a radical transformation of the way grocers do things. Typically – I’m not going to disclose too much, I’m still under an NDA – the sales process is very much about building a business case with the potential client and looking at different fulfilment methods for online grocery. That includes dark stores, in-store picking, automated fulfilment centers. Eventually, when I was at Ocado, we saw the appearance and birth of micro fulfilment centers, which you can install in a physical store or at the back of a physical store. Grocers would, typically, compare these solutions and build a business case and present a business case to their board, bearing in mind that, in the case of Ocado Solutions and deploying the Ocado Solutions technology, the division of responsibility in the contract is super clear and the client actually builds the outer shell of the fulfilment center.

Ocado comes in and installs all their equipment and that’s not just the grid and the robots but that’s a combination of decant stations, big stations. The grid is just for storage and retrieval, so it’s the cube of moving shelves. The technology is all about goods to man technology, so nobody at Ocado that works in order fulfilment walks a single mile or a single meter. They may walk some meters but they don’t walk kilometers or miles during a day. Remember, some years ago, there were workers working for Amazon complaining about walking 17 kilometers per day; this does not happen because the Ocado technology is all about goods to man.

Ocado would come in and install their equipment under that shell that the retailer builds, bearing in mind that actually building these big fulfilment centers – I can come back to how big they are – is actually a significant investment for the retailers and grocers. The business case is complicated. The decision-making process is complicated, so long sales cycles but I’m hearing and seeing that the vendors of small fulfilment centers as well, they have long sales cycles.

I think some grocery retailers, because they are store-based retailers, automation is not something that is in their culture; or maybe it’s just in the culture of the guy who runs their warehouses and the guys who run the supply chain understand warehouse automation. But the guys who run ecommerce don’t necessarily understand that it’s going to cost them much less, potentially, per order fulfilled to use automation, rather than using physical labor picking in dark stores or picking in physical stores.

But how do they choose between those options of, let’s say, the micro fulfilment centers and the standard larger CFCs at Ocado?

We never had a case where micro fulfilment centers came into the equation. I had a call from a retailer in South America the other day and they were comparing Ocado Solutions and the micro fulfilment centers. The micro fulfilment centers are very much a starter kit. When you have a three-year-old, you’re going to buy them Lego Duplo because this is simpler. Eventually, they’ll be able to upgrade to Lego, which gives you much more flexibility in terms of what you can do. My team didn’t like it, but I love to say that the micro fulfilment centers are very much the starter kit, the Lego Duplo of automated fulfilment.