Amid Amazon acquisition rumors, is Ocado better off on its own?
Speculation that the American e-commerce giant was looking to buy the British grocery tech company sent share prices surging last month. VMLY&R’s Michelle Whelan wonders whether Ocado should stick with going it alone.
What's best for Ocado's future?
Over the past year, we’ve all watched with interest Amazon’s movement in fresh and grocery across the UK. Recently, in my own borough of Croydon, an Amazon Fresh store opened for business at the same time as a store closed in Dalston, north-east London.
This approach of testing within boroughs is Amazon’s way of ‘probing’ to understand what offer is working where. So, it’s no surprise at all there are rumors that Amazon is interested in Ocado. If I were in its shoes, I’d do the same.
Why might that be? Firstly, we all anticipate Amazon will grow its grocery business to compete with all our bricks and mortar retailers and it needs an online delivery partner to do this.
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So, it’s interesting news that Ocado’s head of brand advertising, Sarah Emerson, has announced a new direction for the business that aims to make the brand relatable to more customers. And the Ocado Group has hired Amazon director Gregor Ulitzka to the new role of European president for its Solutions business.
The Ocado courtship is predictable. Its business model, logistical dominance and sheer brand power in the UK make it an attractive offer. But while some might say that the Amazon takeover seems to be fading, I’d suggest we need to keep a close eye on the relationship. Amazon, if it wants to be a serious grocery retailer, needs Ocado.
Why is that? My perspective is that Ocado is less a retail company and more a technology company. It sits quite comfortably as an innovation company and has carved out a distinct position in the global market on a mission to transform grocery retail. And it’s doing just that: the first to launch a transactional shopping app on iPhone, the first to launch a grocery shopping app on Apple Watch – over the past two decades, it has invested in autonomous driving, a robot chef and vertical farming.
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So, it’s small wonder that its pioneering technology, fulfillment centers and customer-first ethos make it one of the most efficient online grocery retailers in the world.
An automated system of ’hives’ and rapid robot pickers means Ocado can hold more stock in smaller spaces and offer customers a wider choice of fresh produce. Driver-routing technology enables it to deliver 95% of orders on time. Last mile fulfillment is incredibly expensive and Ocado automation technology is a great way to try to drive this down.
What’s more, the business is investing beyond the UK, recently opening 23 new partner warehouses, customer fulfillment centers and speedy ’Zoom’ sites, with six more expected to go live in APAC. International Solutions revenues for Ocado have doubled from FY 21 as the number of live sites has trebled. No small feat.
And that’s important because? Simply this: online grocery shopping is a growth sector.
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According to WPP’s recent The Modern Grocery Run report, a collaboration with Instacart and VMLY&R Commerce, two out of three consumers will be doing more than half their grocery shopping online by 2033.
That’s clear evidence that people are still prepared to spend more of their hard-earned money on online grocery, so it’s no surprise that brands are jumping in.
Meanwhile, it’s a challenging time in the grocery market. Buffeted by the cost of living crisis and skyrocketing inflation, with food inflation hitting new heights, businesses are looking for new routes to growth.
Online delivery offerings are fueling the competitive market further. Tesco accounts for a quarter of the market, with almost a third of online grocery shoppers using Tesco most often, helping the retailer to post profits of £2.4bn in 2022.
Co-op and Sainsbury’s have become the latest UK supermarket brands to partner with aggregators to provide rapid delivery service, giving people access to convenient, on-demand grocery delivery. Which makes Ocado a very, very tempting proposition. As a British company setting out the guard rails and benchmark for global grocery online delivery, I think we should feel proud of all Ocado is achieving – and the fact that Amazon is interested in a UK international company to accelerate its global operations. Watch this space!
Michelle Whelan is co-chief executive officer at VMLY&R UK and chief executive officer at VMLY&R Commerce UK.