Almost three years ago, US supermarket chain Kroger and British online grocery store Ocado, which signed a partnership agreement, unveiled their first flagship product on April 15th. Kroger has opened a customer fulfillment center using Ocado’s technology in Monroe, a suburb of Cincinnati, Ohio.
Its huge warehouse, which covers about 35,000 square meters, packs and delivers thousands of merchandise to consumers in response to orders received at Kroger’s online stores.
Ocado calls its warehouse a “Shed”, but like any other shed, it has a huge grid on the floor with about 1000 robots on it. 400 employees will be shelving, sorting and moving products. It is expected that the annual sales will lead to sales of 700 million dollars (about 76 billion yen), which is equivalent to 20 physical stores.
The ordered products will be delivered in a Kroger Delivery van manufactured in the United States, modeled after the Ocado van. It is temperature controllable and can carry up to 20 pieces of luggage at a time.
The vehicle is also controlled by Ocado’s software, which uses mapping algorithms to determine the fastest and most fuel-saving route and optimizes delivery.
The partnership between Kroger and Ocado has been built over a long period of time, but the interest in what it creates must be the hottest right now, given the surge in online shopping in 2020.
Due to the pandemic of the new coronavirus and the forced social distance, many people rushed to the Internet to order whole food and daily necessities online rather than going to the actual store.
That trend has also intensified competition in this area. Old-fashioned grocery retailers, including Amazon and Walmart, are steadily advancing their digital strategies, and online industry players are now accepting online shopping in the consumer market. I am struggling to secure even a small amount.
This tide also brought Kroger’s ship to the surface. At a press conference today, Kroger Chairman and CEO Rodney McMullen said Kroger’s delivery business grew 150 percent in 2020.
When the new Corona is over (hopefully), some will return to physical shopping, but many in the industry believe that a demon has emerged from the jar. Many people who come into contact with online shopping say that it’s time to build a new infrastructure to meet the new demand, at least in part.
There is a lot of data to support this. Ocado CEO and co-founder Tim Steiner said the average order value at Ocado before the pandemic was $144, but in 2020 it’s $247. And currently it is $165.
Like many in-store players, Kroger is at the forefront of digital strategy. The company has worked with Ocado to invest in technologies that improve the efficiency of operations in the warehouse, for example by partnering with companies such as Shelf Engine. In addition, he joined hands with Instacart for the delivery of groceries.
The partnership between Kroger and Instacart is still ongoing. In particular, it covers a much larger area than Ocado’s approach. We hear that Ocado is currently active in Cincinnati and will move into Florida.
Kroger said today that consumer fulfillment centers (CFCs) are of different sizes and will be built on the idea of ”modules” (by the way, Monroe’s warehouse consists of seven modules). It is still a capital-intensive approach compared to Instacart’s model, so it’s generally slow to deploy and probably only works in Kroger’s dense markets.
“These two partnerships are crucial to Kroger and our customers,” Kroger CIO Yael Cosset said in a press release today. “We look forward to working closely with Instacart in a strategic partnership with Ocado.”
Ocado was an early player in the UK, launched in 2000, and is seen by many as the industry standard for building and operating an online-only grocery sales business.
However, Ocado has not expanded its grocery direct sales business outside the UK to aim for growth, but rather has extended its reach by leveraging the technology it has developed for itself and commercializing it. Commercialization is still underway.
Currently, they are developing robotization of shelving and other automation systems, as well as technologies for improving the efficiency of delivery services.
Ocado’s “AWS” strategy of commercializing technology developed for its own company and selling it to other companies has come to fruition.
There is now a partnership with an online grocery sales service, especially at a fulfillment center (in partnership with Aeon in Japan, Casino in France and Sobeys in Canada).
This means that Kroger’s deployment model has been demonstrated. However, expanding into the United States is an extremely important move for the company, and at the same time, it will provide Kroger with some of the infrastructure that is indispensable for fighting the country’s giant players such as Walmart and Amazon.
In that regard, I’m very interested in how Kroger will apply the huge infrastructure supported by Ocado to other projects, and if so, what it will look like.
The company is working with Mirakl to develop its own marketplace for third-party retailers. This is a head-to-head match between Amazon and Walmart, companies that offer similar services.