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KEY POINTS

Ocado has been evolving from an e-commerce grocery retailer to a technology company that develops innovative approaches to warehouse automation. This report illustrates Ocado’s dramatic transformation into a company that develops innovative and cutting-edge warehouse automation solutions, even as it continues with its core business of selling groceries online. 

  • Ocado’s transformation into a technology provider has enabled it to diversify its sources of revenue and profitability.
  • Ocado’s latest-generation distribution center includes a dense 3D-grid—dubbed the Hive—in which layers of crates containing grocery products are stacked. Swarms of robots move across the grid to collect crates and take them to picking stations where (human) employees pick the individual items needed to fill customer orders.
  • Retailers that have started using Ocado’s warehouse automation solutions are enjoying the benefits of Ocado’s innovative systems but have risked giving away control of their distribution operations.  
  • Ocado is redesigning grocery e-commerce warehousing with its robot-staffed customer fulfilment centers (CFCs) and the Ocado Smart Platform (OSP). 

Introduction

Ocado has evolved from an e-commerce grocery retailer to a technology company that develops innovative approaches to warehouse automation. It has sold its technology to grocery retailers such as Kroger in the US, Sobeys in Canada, Groupe Casino in France and ICA in Sweden. 

This report illustrates the company’s transformation into a technology provider and gives an overview of how the company’s robotics distribution centers and the suite that supports e-commerce distribution—Customer  Fulfillment Centers (CFC) in Andover, UK, and Ocado Smart Platform (OSP) respectively—work. 

Ocado’s Journey from Grocery Retailer to Technology Vendor

Founded as an online-only supermarket in April 2000 by former investment bankers Jonathan Faiman, Jason Gissing and Tim Steiner, Ocado has made a name for itself in recent years as a technology company with expertise in warehouse automation.

The company’s success in transforming its own online grocery business was a process that required in-house research and development of proprietary robots, machinery and software. Ocado now licenses the use of its warehouse automation technology to third-party retailers. 

Figure 1 is a timeline of the key events of Ocado as a technology company.

Ocado’s technology business already generates an additional stream of revenue and profits. Ocado’s valuation rests in part on that technology increasing its contribution in the long run as the company inks deals with more retailers. Though the company’s e-commerce business is currently a more profitable business, Ocado Technology is growing at faster rate, as shown in Figure 2.  

Diversification should help mitigate Ocado’s relative lack of scale: as we show below, Ocado has a UK grocery market share of just over 1%.

Ocado is planning to expand the scope of its logistics management technology beyond grocery e-commerce to cover other sectors such as automotive and transportation, which will soon see the entry of autonomous vehicles. 

Ocado’s Robot-Staffed Distribution Centers

At CFC3 in Andover, UK, Ocado has developed a new approach to warehousing automation, shifting from a system based on conveyor belts (in operation in other Ocado sites, including Hatfield, UK) to one centered around a dense 3D-grid—dubbed the Hive—in which layers of crates containing grocery products are stacked. Swarms of robots—which communicate with each other using a proprietary 4G-based protocol—move across the grid to collect crates and take them to picking stations where (human) employees pick the individual items needed to fill customer orders. The proprietary 4G technology used at CFC3 allows connections with a frequency of ten times per second with the 1,000+ robots moving around the warehouse and working within a 150 meter radius, according to Ocado Technology. 

The advantages that the Hive’s system has over the traditional warehouse structure (based on conveyer belts) include easier scalability, and reduction in both the warehouse space required and average time taken fill customers’ orders. Ocado Technology says that the Hive’s system can “pick” a grocery item every six seconds and fill a 50-item order in around five minutes. 

Robotic Arm and Collaborative Robot

Ocado is continuing with its research and development to improve the logistics of grocery e-commerce. The company is carrying out high-profile research projects, including SoMa and SecondHands, which are a soft manipulation system and a robot assistant, respectively. The SoMa project is a European Union-funded, Horizon 2020 programme for research and innovation in the field of humanoid robots, and the Ocado’s partners in the SecondHands project are four eminent institutions: Karlsruhe Institute of Technology, which is building the robot; University College London, which is providing the robot’s vision system; Sapienza Università di Roma, which is supplying the actual intelligence for the system; and Ecole Polytechnique Fédérale de Lausanne, which is providing the robot with bimanual manipulation.

Ocado Technology has also been developing a robotic arm capable of picking up the 50,000+ items that feature in the company’s online catalog. The arm is equipped with a pipe running to an air compressor, which is capable of lifting items regardless of their deformability and shape, as long as they are within the weight restriction and the suction cup at its end can create an airtight seal with the item’s surface if it has a big enough surface available and is not porous (Figure 5).

The arm is designed to integrate with OSP and can move items from the storage crates into the delivery crates. It is run by artificial intelligence (AI), computer vision and sensors that enable it to have an understanding of where the crates are, where the items to be picked are located inside the crate, and in what order and where to put the picked items inside the delivery crates.

The suction system does away with the need of remodelling the items in order to make them manageable by the robot arm, and allows the technology to be potentially scaleable and applicable to a variety of enviroments where items need to be handled. 

Ocado has also been developing the prototype of a collaborative robot called ARMAR-6, which will be able to someday work alongside humans in warehouses. For example, if it observes a technician attempting to change a panel and requiring a set of tools, it will come and offer its assistance—either by holding the panel for the engineer or grabbing the various tools that are needed. ARMAR-6 will use AI and machine learning (ML) and will also have a speech recognition system.  

OSP: Ocado’s Proprietary Solution for Operating Online Retail Businesses 

OSP is a suite for the management of e-commerce logistics operations that includes and integrates automated warehousing and software applications. The platform enables retailers to apply Ocado’s logistics and fulfillment expertise to their e-commerce operations. 

OSP comprises the following three components: 

  1. E-commerce and app: Platforms tailored to the partners’ requirements, and include a websitesite content management system and and the algorithms to enable personalized customer reccommendations and other features.
  2. CFC: Ocado’s proprietary mechanical equipment and software installed in the client’s warehouse to run logistics. The equipment is serviced and maintained by Ocado.  
  3. Last mile software: To run operations including home delivery and click-and-collect services. 

Aside from the robots and 4G technology used to operate the Hive in CFC3, the OSP operates through a combination of technologies including big data, cloud computing, AI, ML and the Internet of Things (IoT), to perform predictive analytics, process orders, optimize operations and to manage the operational complexity of the system in a efficient way. Figure 6 illustrates how the key OSP components work together. 

By using OSP, retailers are effectively outsourcing to Ocado their grocery e-commerce distribution, leveraging the experience of the company, benefiting from the flexibility and scaleability of the platform, and forgoing the costs that the development of their own fulfillment structure would have entailed. The downside, however, would be for partner retailers using Ocado’s platform to retain less control over their supply chain and becoming reliant on a third party provider for their logistics operations. 

Key Takeaways

Operating as a technology provider enables Ocado to diversify in terms of industries in which it operates, as the technology developed by the company will also be transferable to partners operating in industries beyond retailing. 

In running its core grocery e-commerce operations using the technology developed in-house, Ocado is also able to collect large amounts of shopper data which will prove to be invaluable in the future when the adoption of smart-home technologies increases and starts reshaping grocery retailing. 

Ocado’s proprietary technology, in particular its automated warehouse technology, is redesigning grocery e-commerce warehousing, making it more efficient. Retailers partnering with Ocado for the use of its technology take advantage of this innovative system without the research and development (R&D) investment that would have been required for the development of their own in-house technology. 

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