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Ocado refreshes tech and strategy

05 February 2022

The innovative grocer and integrator says technological breakthroughs will boost the Ocado Smart Platform, allowing it to work faster with lower operating costs, with the strategic aims of providing shorter delivery times and quicker speed to market for installations.

This is in response to the challenge of both Q-Commerce companies who are offering extremely fast (15 mins in some cases) grocery deliveries in dense urban settings, and micro-fulfilment hubs which are much faster to roll out than the centralised, large fulfilment centre model favoured by Ocado.

Innovations include the 600 Series bot - said to be the world’s lightest and most efficient grocery fulfilment bot: lighter grids; and robotic arms that pick groceries directly from the grid.

The company claims these innovations will allow Ocado Group and partners to install the platform faster and in simpler, highly optimised, more cost-effective buildings, requiring lower capex, with a faster time to go-live. In addition, partners will be able to achieve greater throughput from the same or smaller footprint, lower labour costs, and address labour shortage challenges.

The lighter bot unlocks a cascade of benefits for optimised CFC design, enabling installation into simpler, more cost-effective buildings, as well as in micro fulfilment centres near the customer.

Partners ordering standard-sized CFCs today for delivery in H2 2023 will have the following features enabled: 600 Series bots; the 600 grid and Optimised Site Design; Automated Frameload; On-grid Robotic Pick; Ocado Swift Router; and Ocado Flex.

Orders made prior to the launch of Ocado Re:Imagined for delivery at the end of FY23 can be retrofitted to include many of these enhancements.

In detail, the enhancements are:

The 600 Series bot is built using additive manufacturing, with more than half of its parts 3D printed. It is said to be cheaper to build and operate than its predecessor, more energy efficient, and high performing. The 600 Series bot has continual software updates and on-demand parts which means higher utilisation of each bot. The lighter bot unlocks a cascade of benefits for optimised CFC design. This will enable the reimagined Ocado Smart Platform to be installed into simpler, more cost-effective buildings, as well as in micro fulfilment centres near the customer.

The 600 grid and optimised site design. The lightweight design of 600 Series bot allows Ocado to build lighter grids, faster. These new grids can be built in parallel, taking weeks rather than months to install and at a lower cost. Because the 600 Series bots are highly energy efficient and require a lot less power to achieve the same throughput from the same footprint, new sites will require less chill equipment, lowering energy consumption levels and overall construction costs. The dramatic reduction in material used for lighter grids makes site design easier, and allows for simpler buildings, reducing the timelines and costs associated with the construction of purpose-built facilities.

Automated Frameload. This process automates the loading of totes with ready-for-delivery customer orders onto delivery frames ready for dispatch, replacing the manual process currently in place. The automation of this process leads to lower labour costs and higher productivity per employee.

On-grid Robotic Pick. This process automates the picking and packing of customer orders directly from the grid. For this to work in grocery, robotic arms need to be able to pick tens of thousands of products of varying shapes, sizes, weights, and fragility and pack them densely in bags with human precision and accuracy. Ocado Group has developed the technologies - machine vision, deep reinforcement learning and advanced sensing - which are required to pick and pack grocery items in a highly efficient and cost  effective way without any prior knowledge of what those products are. The benefits of On-grid Robotic Pick include lower labour costs; reduced footprint; higher throughput in the fulfilment centre; optimisation of warehouse design leading to lower construction costs; and the ability to automate stock consolidation during off-peak hours as a key enabler for Ocado Orbit and consolidate stock better in off-peak periods.  

Ocado Orbit: the world's first Virtual Distribution Centre. One of the advantages of OSP is that it does not require a network of regional distribution centres to deliver products to the fulfilment centre. Product is brought by the manufacturer to the CFC directly. Manufacturers only find this cost-effective, however, when they can deliver products in sufficiently large quantities. Under the current model, this means that CFCs need to be a certain minimum size to achieve the necessary economics for suppliers. Ocado Orbit addresses this challenge by creating a system whereby multiple smaller footprint warehouses share a "virtual distribution centre", which will use the latest software in AI and Machine Learning, in a seamless supply ecosystem. Each warehouse acts as a primary supply hub for a fraction of the stock but all have access to the combined range, offering their customers the choice of a large range. Ocado Orbit enables smaller fulfilment centres, closer to the customer, to be able to offer a large range, short lead times, and value simultaneously.  

Ocado Swift Router is an innovation by Ocado Group that enables delivery of last minute, short lead time orders as well as larger, longer lead-time orders, all from the same van. This means that partners need no longer make a trade-off between the benefits of short lead time orders and a today-for-tomorrow service and customers can have choice, value and lead times that work for them all together for the first time.

Ocado Flex means that partners can use their own webshop and app solutions while taking advantage of OSP. As a result, they no longer need to write-off historic investment in their webshop to be able to benefit from OSP's market-leading customer proposition.

For more information, visit www.ocadogroup.com


Rueben Scriven, senior analyst, Interact Analysis

Ocado’s share price has slumped more than 49% since January 2021, perhaps due to a market correction given the company’s incredibly high valuation at its height. Another factor could be its slow progress in adding partners. The company has formed just one new partnership since 2019 (Alcampo), whereas it formed eight partnerships between 2017 and 2019 (Ocado started licensing its technology to international partners in 2017). Some believe the slowdown in new partnerships comes down to a) Ocado’s premium costs relative to other providers, and b) a reliance of centralised fulfillment in an age of convenience and speed (i.e. micro-fulfillment).

This week, Ocado announced a myriad of new technologies and innovations primarily focused at getting customer orders delivered quicker. While Tim Steiner may not be the biggest fan of rapid delivery services, he’s recognised the importance of offering a wide variety of delivery slots, ranging from a few hours to a few days. 

Tim Steiner claimed the robots were 5x lighter than the 500 Series, requiring smaller batteries and motors and causing less friction against the grid meaning the site doesn’t have to be cooled as much. Whilst interesting in and of itself, it’s what these light-weight robots enable that caught our attention. The lighter, more energy efficient bots allow for a lighter, more simple grid structure which enables the technology to be built in brownfield sites, rather than purely greenfield locations.

This has significant implications for the development of smaller facilities located closer to the customer where greenfield sites are harder to come across. Furthermore, we estimate that the robots account for approximately 25% of the overall value of warehouse automation system which means that a cost reduction in the robots leads to a meaningful impact on the overall economics of the solution.

Ocado Orbit eliminates the need for a distribution centre while still maintaining a single point of contact for suppliers. This is achieved through dynamic redistribution of inventory across its fulfillment network. A supplier will deliver goods to a single fulfillment centre and Ocado will then redistribute this inventory across its fulfillment centre network. Importantly, different suppliers can ship to different fulfillment centres. For example, if suppler A delivers to fulfillment centre A and supplier B delivers to fulfillment centre B, inventory from both fulfillment centres is redistributed and shared across the two sites (see diagram below). What’s unclear, however, is how many Ocado trucks will need to be whizzing around the network in order to redistribute the inventory.

One of the more interesting benefits of the dynamic reallocation process is the replenishment of smaller fulfillment assets from a larger CFC. One of the biggest challenges which rapid delivery companies face is the replenishment process. Shipping cases to dark-stores is highly inefficient as the throughput is too low. As a result, many rapid delivery companies replenish their dark-stores with eaches, or at least are aiming too. However, this requires an additional step in the supply chain to ‘decant’ the items from cases into totes before shipping them to the dark-stores. Furthermore, receiving a tote of items in a manual dark-store leads to inefficiencies when restocking shelves.

The Ocado Orbit means that totes which have been ‘loaded’ upstream in a larger CFC can be shipped to an Ocado Zoom site and ‘slot’ directly into the automation without having the decant the items into the system. This is essentially how a vending machine works. You don’t replenish a vending machine with individual Snickers bars, you slot in a full cartridge of Snickers bars which were ‘pre-loaded’ upstream at scale. What’s more, the additional step in the supply chain used to decant cases into totes has the potential to generate revenue because it’s also fulfilling local customer orders as well as replenishing Ocado Zoom facilities.

Ever since Jefferies published its scathing note on Ocado on its ‘misstep when compared to micro-fulfillment’, analyst firms have been skeptical of Ocado’s CFC strategy. Whilst Ocado has since developed mini-CFCs and Ocado Zoom facilities, the core focus of its business has remained focused on centralizing fulfillment.

Today, Ocado announced a suite of technologies that allows Ocado to get smaller, move closer to the customer and provide shorter delivery times. Whilst this is certainly a good thing for Ocado, we’re starting to see signs in the market that Ocado’s bet on centralized fulfillment wasn’t a misstep after all. Firstly, the trials of automated micro-fulfillment centers are taking a lot longer than previously anticipated – in fact we’re seeing far fewer large-scale orders of automated micro-fulfillment centers than we had originally forecast 12 months ago. Furthermore, many of the large grocery retailers now outsource the fulfillment of unprofitable grocery orders with short lead times to companies like Instacart and its white label offerings, meaning the more profitable weekly-shop orders with long-lead times can be centralized in a CFC. Secondly, the sentiment from Kroger seems to be very positive with several new sites being announced since the initial go-live last year.

You can read Rueben’s full analysis here - https://bit.ly/3G8aHJ4