“In the course of the gold rush it’s a very good time to be within the decide and shovel enterprise” – Mark Twain
COVID-19 is inflicting a seismic shift within the grocery sector. The strict government-imposed lockdowns are forcing many shoppers to buy their groceries on-line, lots of that are doing so for the primary time. Like several massive shifts in client conduct, there are winners and there are losers, and Ocado seems to be sitting comfortably within the winner’s camp, if its surging inventory worth is something to go by.
In recent times, Ocado has pivoted away from being a web-based grocery retailer to a supplier of e-commerce and achievement know-how for different grocery retailers. Ocado describes itself as a ‘technology-led, world, software program and robotics platform enterprise, with a robust retail heritage’.
Whereas Ocado’s worth proposition extends past warehouse automation, its clients might select to run their e-commerce achievement operations in-house, during which case, they might possible put money into a warehouse automation resolution equipped by a system integrator. This perception offers an evaluation of the grocery warehouse automation market within the context of Ocado and discusses the possible influence of COVID-19 and what this implies for the expansion potential of the corporate.
In 2019, roughly 33% of Ocado’s income got here from its options enterprise and that is anticipated to extend as a result of variety of new partnerships it’s fashioned each domestically and internationally.
In 2019, Ocado fashioned a 50:50 three way partnership with M&S to supply a web-based grocery platform for the UK market. As well as, Ocado has elevated its worldwide partnerships which now consists of seven grocery retailers similar to Kroger’s within the US and Coles in Australia. Ocado can also be trialling its Ocado Zoom service in London which can serve clients with speedy on-line deliveries utilizing what it calls mini-sized Centralized Success Facilities (Mini-CFCs).
Ocado’s imaginative and prescient is to create a vertically built-in, end-to-end on-line grocery know-how platform from click on to gather (and/or supply). Nevertheless, till lately, Ocado relied on third-party system integrators to supply the warehouse automation tools utilized in its distribution and fulfilment facilities. This consists of the AutoStore resolution which many critics of Ocado declare it has copied unlawfully. By bringing the know-how in-house, Ocado is turning into a feared competitor for lots of the main warehouse automation suppliers.
The Grocery Warehouse Automation Market
Even previous to COVID-19 the grocery warehouse automation market was booming. In reality, since 2017, the grocery market has been one of many quickest rising warehouse automation segments. Due to the extremely aggressive, consolidated, and low-margin nature of the grocery sector, nobody tends to put money into automation till everybody does. Because of this, the grocery warehouse automation market tends to develop in phases with massive cycles of investments adopted by intervals of milder progress. When Amazon acquired Entire Meals in 2017, we noticed a big spike in investments as many US meals retailers feared a possible disruption to the market.
Nearly all of the main warehouse automation distributors, similar to Dematic, SSI Schaefer and Honeywell Intelligrated, provide options tailor-made to the grocery market. Nevertheless, there’s one firm which accounts for the lion’s share of the market. With its off-the-shelf resolution tailor-made to the grocery market, Witron is the market chief within the grocery section with an estimated world market share of almost 20 p.c in 2019*.
Certainly one of Witron’s candy spots is distribution facilities which replenish shops with blended pallets. As such, its options are tailor-made in the direction of case-level processing with restricted capability for item-level processing. Ocado’s resolution, then again, focuses on buyer achievement and subsequently handles items on the merchandise stage.
Witron and Ocado
Within the short-term, we don’t count on Witron to be a big direct competitor to Ocado. In reality, we’ve seen meals retailers put money into know-how from each Witron and Ocado on the identical time to automate completely different components of their provide chain. Coles, an Australian meals retailer, is investing greater than US$650 million in two massive automated distribution facilities which will probably be constructed by Witron. As well as, Coles can also be partnering with Ocado which can deal with Coles on-line orders and achievement operations.
The rationale Ocado and Witron don’t come head-to-head is as a result of Witron operates within the ‘store-replenishment’ grocery warehouse automation section, whereas Ocado competes within the ‘direct-to-consumer’ grocery warehouse automation section. We estimate that in 2019, the shop replenishment grocery warehouse automation section, which ship blended pallets to grocery shops, accounted for greater than 75% of the worldwide grocery warehouse automation market. The direct-to-consumer grocery warehouse automation section, then again, which Ocado performs in, accounted for a much smaller share of the market, though this section is forecast to extend at the next price and can subsequently account for a bigger share within the close to future.
The Influence of COVID-19 on the Market
Many meals retailers are struggling to deal with the surge in on-line orders due to COVID-19, particularly these which use in-store order achievement strategies. Because of this, many retailers could also be trying to advance the automation plans of their achievement operations. Based mostly on interviews and surveys with warehouse automation distributors, there was a rise in grocery warehouse automation venture tenders over the previous two months on account of COVID-19.
One of many largest fears for retailers is that there will probably be one other spike in circumstances of COVID-19 as soon as the lockdown restrictions have been lifted. To be able to mitigate and put together for such a situation, we count on meals retailers will look to put money into plug-and-play options with restricted infrastructure necessities with a view to quickly set up the answer.
Within the long-term, nonetheless, we count on to see a big enhance within the variety of massive grocery warehouse automation initiatives specializing in e-commerce achievement; each micro- and centralized-fulfillment (see subsequent part for additional discussions on micro-fulfillment).
Whereas we anticipate order consumption for grocery warehouse automation initiatives to extend in 2020, we count on system integrator revenues to take a success. That is primarily as a result of some venture completions will possible be pushed into 2021. Our evaluation means that warehouse automation revenues for grocery initiatives in 2020 will lower by 20 – 30% relative to our preliminary forecasts previous to COVID-19.
Centralized vs Micro-Success
One of many important explanation why many funding corporations had a unfavourable outlook on Ocado’s progress potential just a few months in the past was as a consequence of its concentrate on centralized achievement facilities. 2019 noticed micro-fulfillment take heart stage and lots of noticed it as a competing technique to centralized achievement.
What many traders didn’t understand, nonetheless, is that the 2 methods complement one another. As any provide chain supervisor will let you know, the optimum achievement technique is determined by a number of elements together with the demographic, the favored supply mannequin and the geography. It’s not a ‘one dimension suits all’ situation.
That stated, it might be a missed alternative for Ocado to disregard micro-fulfillment as a possible resolution kind. In keeping with its web site, Ocado now affords a mix of micro- and centralized achievement facilities, increasing its alternative market and enormously bettering its competitiveness within the US which can possible favor micro-fulfillment as a consequence of its bigger land-mass.
Coming into the Normal Merchandise Market?
In keeping with its annual report, Ocado can also be trying to enter the final merchandise market. This might place the Ocado Good Platform (OSP), which incorporates Ocado’s achievement belongings, end-to-end software program, cellular apps and lots of extra further companies, in competitors with the likes of Shopify and Amazon’s achievement companies.
To be able to keep away from direct competitors with Amazon and Shopify, Ocado must companion with massive, incumbent retailers, versus SMEs. Nevertheless, not like the grocery market, many common merchandise retailers have already invested considerably of their e-commerce methods and on-line platforms.
Ocado might resolve to concentrate on its proprietary achievement facilities within the common merchandise market as an alternative of being an end-to-end service supplier.
Ocado now affords a mix of micro- and centralized achievement facilities, increasing its alternative market and enormously bettering its competitiveness within the US which can possible favor micro-fulfillment as a consequence of its bigger land-mass.
One potential headwind for Ocado is the disruptions in its achievement operations attributable to the overwhelming demand for on-line grocery orders. In keeping with a UK survey revealed by Web Retailing, 57.three% of the 1,000 respondents claimed to have skilled disruptions of their on-line grocery buying as a result of companies being overwhelmed. Moreover, Ocado needed to quickly shut down its web site after scuffling with the extent of on-line visitors in early March. It’s potential that customers trialling on-line grocery purchasing for the primary time may very well be postpone from doing so in future if their first-time expertise was sub-par.
Regardless of this, nonetheless, there’s a transparent progress trajectory for on-line grocery gross sales and Ocado is properly positioned to reap the benefits of this. Ocado is diversifying its product portfolio by providing grocery micro-fulfillment options and in addition to probably providing common merchandise achievement options; each of which can enormously increase its alternative market and enhance its competitiveness.
Editors Observe: Robotics Enterprise Evaluation wish to thank Work together Evaluation for permission to reprint the unique article (discovered HERE).
Rueben Scriven is a Analysis Analyst at Work together Evaluation the place he’s liable for growing world forecast fashions for prime progress know-how markets together with electrical industrial autos and logistics automation. His position additionally consists of liaising with shoppers to align Work together Evaluation’ analysis focus, construct and check data-driven forecasting instruments and interacting with producers, policymakers and end-users to assist refine our fashions. Scriven graduated from Durham College with a level in Biochemistry.