Commentary

Ocado Robots To Take Orders At About 20 Kroger Warehouses

Cincinnati-based Kroger announced a partnership with U.K.-based Ocado yesterday that will bring the latter’s advanced digital and robotic capabilities to about 20 warehouses the second-largest grocery retailer in the U.S. over the next three years and “speed up [Kroger’s] efforts to redefine the food and grocery customer experience,” according to its chairman and CEO, Rodney McMullen.

“The deal will give Ocado, which views robots as a ‘powerful new drug,’ immense power to shape the future of the grocery industry in the U.S. It will also help Kroger better compete with Amazon, which is delivering online grocery orders from Whole Foods stores in several cities,” writes Hayley Peterson for Business Insider.

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“Ocado's current logistics and technical expertise in supporting online grocery fulfillment in Europe allows Kroger to potentially leapfrog both Walmart and Amazon in this space,” Diana Sheehan, the vice president of retail and shopper insights at Kantar Consulting, tells Peterson.

“The Ocado partnership is the best investment the Kroger Company’s ever made in the last 25 years,” Burt Flickinger, managing director of consultancy Strategic Resource Group, tells Reuters’ Paul Sandle and Lisa Baertlein. “Ocado is a consumer’s dream and a competitor’s nightmare, and the competitor that’s going to get caught in the crossfire is clearly Amazon.”

Kroger and Ocado intend to have three Kroger warehouses, in locations yet to be determined, automated by year’s end.

“The grocer will become the exclusive user of Ocado’s technology in the U.S.,” report Bloomberg’s Sam Chambers and Thomas Mulier. “Kroger also agreed to buy new shares in the U.K. company, taking a stake of about 5%.” 

On a conference call, Ocado CFO Duncan Tatton-Brown told reporters, “we have the capacity to sign more deals,” adding that yesterday’s deal “makes a point: If you want to sign with us, you have to get on with it,” they write.

Ocado, which is based north of London in Hatfield, England, “was founded in 2000 by Tim Steiner and two other former Goldman Sachs bankers and is best known as an online grocery chain delivering premium products. It has been investing heavily in its technology business, Ocado Solutions, in order to license its automated warehouse platform to third-party international retailers,” Alex Ralph and Martin Strydom write for The Times of London.

“The agreement was Ocado’s fourth international partnership in six months,” they report. “Luke Jensen, the boss of Ocado Solutions, said that with the U.S. grocery market worth an estimated trillion dollars and online groceries representing only about 1% of the market, the prize was significant for Ocado.”

Ocado’s stock closed up 44% yesterday on the London Exchange.

Steiner is the only founder to remain at Ocado, the BBC reports. Jason Gissing retired in 2014. Jonathan Faiman, who Steiner has known since they attended the same nursery school in North London, left in 2009 and is chairman of the oil exploration group Neos.

Meanwhile, Ocado “has become a world leader in online grocery sales, a tricky business that even Amazon has struggled to master,” write Heather Haddon and Saabira Chaudhuri for the Wall Street Journal. “The company says it has the world’s most sophisticated automated grocery warehouses. Thousands of robots at its facilities communicate via advanced network technology to pick groceries out of storage and fill as many as 65,000 orders a week. Artificial intelligence helps to continually optimize those operations.” 

Kroger CEO McMullen tells them the companies first discussed a partnership years ago and that it wasn’t a direct response to Amazon purchasing Whole Foods last year. “The talks intensified in recent months after Ocado improved its online grocery-delivery business, he said,” they write.

“I consider Ocado to be best in breed in terms of their automated fulfillment (Customer Fulfillment Centers) and creating customer-friendly interfaces to facilitate efficient ordering,” writes McMillanDoolittle partner Neil Stern for Forbes.

But, he cautions at the end of his piece, “there is likely not just one perfect solution for e-commerce fulfillment. While in-store pick is an easy way to start, it is highly inefficient from a labor standpoint and difficult to scale — in busy e-commerce stores, pickers can get in the way of shoppers. Automated warehouses are also not the end-all solution. Automation is capital intensive, requires scale to get to efficiency and doesn’t work in all geographies.… Kroger is likely to continue to operate multiple models while it builds out these automated centers.”

That said, robots around the world must be doing cartwheels and back flips at their prospects for deployment this morning.

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