Ocado: An AgriBusiness Case Study — Nicole Junkermann
I was fascinated to learn during the Harvard Business School AgriBusiness Seminar that, on September 29, 2020, the market value of U.K.-based grocery ecommerce firm Ocado Group (Ocado) reached $27.5 billion, more than double its value in January and — as noted by the British Press. This surge in share price was a true reflection of a sudden shift in expectations for the future of supermarkets and e-commerce in the UK and beyond.
Whereas previously, ecommerce platforms like Ocado had been seen as a risky investment, now many are hedging their bets that such platforms will continue to dominate the future of consumption beyond the pandemic. Co-founder and CEO Tim Steiner was clearly ahead of the trend. However, more than just being a forward thinker, Steiner had prepped and readied Ocado so that, when the right time came, the company would be ready to dominate the ecommerce platform market by pointing to its strong credentials and performance history. It’s e-commerce metrics are testament to this, with 99% order accuracy and 95% on-time delivery.
From the outset, Steiner seemed attuned to the importance of grocery warehouse automation, product handling and the nuances and flexibility of customer demands. For example, Ocado began its life using customer-fulfilment centres, automation, scale and smart software to pick and pack orders quickly and accuracy. The first of these centres was located in Hatfield, England which, at full capacity, could support $1.1 billion in annual grocery sales. This commercial acumen and willingness to innovate are traits which, I believe, make Steiner a stand-out entrepreneur; the ability to foresee, appreciate nuances and go against the grain takes courage but ultimately, can reap the ripest of rewards.
However, like all great endeavours, nothing worth having comes without its own trials and tribulations. Ocado experienced this early on when it paid $13.3 million to a software contractor, only to scrap the system days after it was delivered. It also faced the challenge of working with large suppliers whose service and pricing models favoured incumbent retailers. It’s 2010 IPO was received with hesitancy from bearish analysts and fund managers, despite the fact the firm had raised about $378 million, the most of any European internet start-up. Despite this, their IPO flopped. The Independent called the flotation “one of the most controversial in the last decade,” describing it as “further humiliation” for Ocado. The business was still unprofitable and Hatfield was filing, however, Ocado’s service remained much admired and Luke Jensen, a former Sainsburys Executive who joined Ocado in 2017 as CEO of Ocado Solutions, put this down to their superior technology. Ocado was less likely to show up with missing items and substitutions, and was more likely to be on time, all of which, at the end of the day, are what consumers prioritise.
On the back of this, Ocado continued to grow and thrive with the implementation of their ‘Ocado Smart Platform’ focused strategy. In 2019, Ocado.com had a 14% share of U.K. online grocery sales and 1.3% of the overall U.K. grocery market. The platform had 795,000 active customers, marking 10.3% annual growth, and fulfilled 325,000 orders per week, up from 294,000 in 2018. The company’s success rests largely on its continual willingness to invest in robotics, machine learning and artificial intelligence too improve fulfilment efficiency. This is seen, for example, in its fourth customer-fulfilment centre, Erith, the world’s largest automated grocery warehouse. Ocado’s first robotic arms went online in Erith in 2019. Using machine learning and computer vision technology, they had pole-like arms with suction cups in the “hand” position to pick and pack items into customer totes at the pick stations. This progress was transformative to the business.
So, what can we learn from Ocado as a case-study? Firstly, it is that sometimes, you must be willing to think outside the box and be a forerunner in your industry if you truly want to thrive and lead the market. Secondly, the ability to anticipate trends and future changes is what really determines whether a company sinks or swims. Finally, we cannot underestimate the importance of technology; I truly believe that technology has been, and will remain, at the crux of all major business, investment and entrepreneurial actions and decisions. We need to be willing to embrace trial and error; we have to be willing to adapt and innovate and, ultimately, we must wield technology to try and find new solutions to long-standing problems in all industries. The foodtech sector has been a particular passion of mine and I am excited to see how this industry utilises technology and, specifically, artificial intelligence to help tackle problems such as food insecurity, sustainability and global farming.