As the Vaccine Economy opens up, one question that remains unanswered for now is whether the societal shift to online grocery shopping and delivery during the COVID crisis will be sustainable?
As diginomica has consistently argued, the genie is well and truly out of the bottle here and although shoppers will return to the stores, the need to strike a genuine omni-channel balance of online and offline will be the challenge facing not only grocery firms, but retailers as a whole.
But for online grocery tech platform provider Ocado there are bigger ambitions ahead as the firm outlined yesterday with a vision of a not-too-distant future where a next generation of robots will pick and pack groceries and get them to the customer’s front door in as little as two hours.
Ocado has long been famous for its use of automation and robotics, but the Ocado Re-imagined strategy unveiled by CEO Tim Steiner takes this onto another level in which the firm will be able to roll out virtual distribution centers to replace physical hubs, bringing economies of scale and enabling supermarkets to become more competitive against rapid-delivery rivals.
Steiner explained that currently there is a model in the sector of small, manually operated warehouses with a limited range, but to be sustainable, they need to charge something like a 30% premium over a supermarket.
In the brave new world pitched by Ocado, a new breed of robots - the 600 Series bot - will be able to pick from 50,000 products and customers will pay essentially the same price as they would in the supermarket.
What Ocado plans
In sum, Ocado announced:
- The 600 Series bot, pitched as “the world's lightest and most efficient grocery fulfilment bot” with more than half of its parts 3D printed. It has continual software updates and on-demand parts which means higher utilization of each bot. It also allow for a reimagined Ocado Smart Platform to be installed in simpler, more cost-effective buildings, as well as in micro fulfilment centers nearer to customers.
- A lighter 600 grid and optimized site design which can be built in weeks rather than months, and come at a much lower cost.
- Automated Frameload to automate the loading of totes with ready-for-delivery customer orders onto delivery frames ready for dispatch. Ocado argues that this will lead to lower labor costs and higher productivity per employee.
- On-grid Robotic Pick to automate the picking and packing of customer orders directly from the grid. Benefits of this tech were cited as lower labour costs; reduced footprint; higher throughput in the fulfilment center; optimization of warehouse design leading to lower construction costs; and the ability to automate stock consolidation during off-peak hours.
- Ocado Orbit, branded “the world’s first Virtual Distribution Center”. This is a radical re-thinking of Ocado’s traditional OSP in so far as it eliminates the need for a network of regional distribution centers to deliver products to Customer Fulfilment Centers (CFC) which need to be a certain minimum size for this to be economically viable for suppliers. Ocado Orbit will create a system whereby multiple smaller footprint warehouses share a virtual distribution center, which will use AI and machine learning. Each warehouse acts as a primary supply hub for a fraction of the stock, but all warehouses have access to the overall range.
- Ocado Swift Router to enable delivery of last minute, short lead time orders as well as larger, longer lead-time orders, all from the same van.
- Ocado Flex allows Ocado retail clients to carry on using their own web shops and apps while taking advantage of the OSP, thus negating the need to write off previous web investments.
The vision thing
It’s all a bold vision and probably the most ambitious strategic upgrade in Ocado’s 20 year history. But it’s essential to think bigger at this time, argued Steiner:
Today, the industry stands at a turning point. Consumer expectations have dramatically changed. Social media has enabled us to peek into lifestyles cultures and cuisines that would previously have remained out of sight. We are more aware and mindful of our health and wellbeing and more selective and discerning about what food we put on our tables. Choice and large range matter more than ever before. Customers want to be able to order exactly the products they want.
That immediately begs the question of what is a big enough range to choose from? Steiner made the point that few customers will ever choose from more than a range of 2000 products:
The challenge is that those one to 2000 items are different for every customer. For example, one in three of Ocado Retail customers has more than 1000 items alone in their favorites. That’s before you get to the extra items that they may want to add on a subsequent shop or on a shop-by-shop basis. Our range of 50,000 or more products includes the different 2000 products for 98% to 99% of those customers.
Another outcome of the pandemic has been a greatly increased focus on delivery options across the entire retail sector. This has been particularly true in the online grocery sector. Customers want to receive their purchases when it suits them, said Steiner:
For some, that's an order that arrives on the weekend or after work. For others they need their food delivered within a couple of hours or even sooner.
The 600 Series bot is a critical element of the Ocado vision, said Steiner:
The 600 Series bot opens up exciting new opportunities to rethink our grids and state of the art fulfilment centers. The radical reduction of forces and loadings applied from the bots means we can now build ultra-lite grids too. These ultra-thin light gauge grids can be built in parallel. They take weeks, not months, to install at much lower cost. Together the lighter bots and grids unlock a wealth of productivity and environmental benefits. Our 600 series bots are ultra-energy efficient and require a lot less power to achieve the same throughput. Thanks to the significant reduction in heat load, our sites will require less chill equipment, driving energy consumptions levels and overall construction costs further down.
The use of the new tech will enable further automation of manual tasks, added James Matthews, CEO of Ocado Technology, including what he called "the most physically demanding job" - the loading of customer-ready orders onto delivery frames for dispatch:
Today we have a technology-enabled manual process. Algorithms guide human operators [with] the best place in the frame for each tote, optimizing for efficient unloading and sequencing, optimal utilization delivery vans, as well as the most efficient distribution points in a vehicle.
The Ocado vision is built around the idea of the Automated Frameload, where AI systems enable the most efficient loading of any tote without the need for human touch, he added:
No two frames are exactly the same, each with a slight imperfection, accounting for the tough life they live in the grocery supply chain. Automated Frameload literally does the heavy lifting for humans, taking care of a physically demanding job. As the shift to online grocery accelerates, here is another step on our journey to automate labour intensive, tedious and tough jobs.
Ocado estimates that the various components of its reimagined strategy will reduce labor costs by 30% in the medium term and 40% in the long term. That’s certainly good news for suppliers, although perhaps less so if you’re a warehouse worker…
The successful grocery retailers have always been the ones who have been cost-dominating in their field. The winners in grocery will be those who can hit the sweet spot between delivering the best customer proposition across choice, lead times and value at the best economics for retailers.
This is a bold vision statement from Ocado, one that comes 20 years on this week from the first delivery made by the company out of a small temporary warehouse in Hemel Hempstead, England. The new tech coming down the pipeline position the firm to be able to offer its solutions to a greater number of clients - and, critically, to enable those clients to offer their own customers the necessary balance between value and efficiency.
That’s the plan then. Now it just needs to be executed on over the coming months and years. And if Ocado can turn a profit in the meantime, that would be good too.