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Ocado's brand boss says it has no idea how it wants to advertise itself

Ocado's marketing challenge

Ocado is nearing the appointment of an agency to manage its media planning and buying following a review which kicked off in January. But, as the online supermarket’s head of brand admits, it’s still got no idea how or where it wants to advertise itself.

Since it was founded in 2000, Ocado has slowly built up a strong presence in the UK thanks to tie-ups with more established retailers like Waitrose and Morrisons. It’s advertising, however, has remained digitally focused and has largely been handled in-house.

Speaking to The Drum recently, group head of brand Kristian Brugts said that the hire of external agencies – it appointed Now to the creative account last year - and the decision to put greater budget behind broadcast media should not be read as a sign of what he described as “oh my god we need more business”.

Instead, it’s linked to the massive investment into a new flagship distribution centre - which is tipped to double its order capacity to over 600,000 per week - as well as improvements to its online infrastructure.

“We’re growing at a healthy rate,” he said. “It’s almost about future-proofing, if we needed more customers with the new facilities. [And] it’s time. We’ve always handled these things internally so it’s just times to hand it over.”

But, it’s not a matter of “if” Ocado needs more customers. It does. And fast.

Despite a 13.1% sales increase in the most recent quarter (13 weeks to 26 February), wealth management firm UBS said that growth in the UK online grocery market is slowing and Ocado could feel the heat, especially given the precarious position it’s left itself in with the build of the monster warehouse.

“To reach scale, we see [Ocado] needing to acquire customers more aggressively through a combination of price and marketing investments, likely to the detriment of profitability”, said UBS, adding Ocado will need to grow weekly orders by 13 per cent a year through to 2021 if its distribution centre is going to work to at least 90% of its potential.

“Ocado may be able to meet medium-term consensus expectations on order growth; or it may be able to meet expectations on margin; but achieving both looks an uphill challenge in a slowing market, and with Amazon Fresh a new competitor for the incremental customer.”

On the back of this note, Ocado's shares dropped to an eight-month low.

But if observers are looking for assurances from a well-honed marketing plan they will have some time to wait. Brugts revealed that despite the appointment of an agency to manage media planning, buying and insight nearing closer, it’s still “on a process of finding out what that’s going to be”.

“We don’t know what channel, the output, the fundamental proposition. We need to understand more about the geographies and people. We’re hoping to define it relatively quickly but what the outcome will be, who knows,” he admitted.

The marketer went on to explain that its approach to digital – an “essential” channel for the online retailer – is similarly “considered, but flexible,” saying that there is “no set route, strategy or plan”.

“We like to have an idea of where we’re going, but it’s not set in stone. It’s fluid and adaptable depending on what customer expectations are and personal requirements as a business,” he said.

For all the current unknowns, what Brugts does want is for Ocado's own-brands to take a bigger share of marketing consideration. The retailer launched the first of its own-label ranges in 2010 and by 2015 they were worth in excess of £100m. Brugts called out its Fetch pet range and the beauty and wellness brand it launched in partnership with Marie Claire, Fabled, as performing “better than we expected them too”.

“We’d like to expand the offering of some of the smaller stores that we do,” he continued. “We certainly have plans to do that but it depends on the existing stores we have and whether we expand them and their offerings.”

But winning in this area is going to be a hard fought battle. Online food shoppers in the UK are highly demanding and with grocery own-label penetration in many categories well over 50%, Ocado is at a strategic disadvantage in providing its shoppers with a private label offer that they understand.

Catherine Shuttleworth, chief executive at shopper marketing agency Savvy suggested the problem lies squarely in the fact that Tesco, Sainsbury's, Waitrose, Morrisons and Amazon (using Morrisons product) have been providing own-label products that many people have grown up with.

“Because Ocado is an online only retailer and a new entrant in the UK market, shoppers are unclear about how they source products and as a result what quality they will receive," she said.

"This was easier for shoppers to understand when Ocado had the Waitrose tie-up but now is more challenging to deliver. A strong own-label offer will be crucial in terms of managing both differentiation and the value proposition for Ocado moving forwards.”

That it has to do this through building brand trust is not lost on Brugts. “Brand trust is the key to convincing people [to convert],” he said.

“It is a tricky proposition to convince people that someone you don’t know, in a place you’ve never seen, is picking your shopping. We can only do that through trust and word of mouth. [Shoppers] will be having questionable experiences with other online supermarkets I would imagine, so we just have to convince them we’re better.”

Additional reporting by Katie Deighton.

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Jennifer Faull

Jen Faull is deputy news editor at The Drum with a remit to cover the latest developments in the retail and FMCG sectors. Based in London, she has interviewed major business figures including top marketers from Mondelez, Unilever, Tesco, and Lidl.

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