Ocado forges strategy for internet boom
business model to tap the booming e-tail sector, as the UK's top
supermarkets compete for custom.
Following assertions by research analysts Verdict that the UK online food retail sector will grow 3.9 per cent to be worth £4.5 billion by 2010, Ocado - which runs the Waitrose online grocery service - is poised to cement its place as market innovator.
After two solid years of research and development the company claims it has achieved unique market specialisation positioning it way beyond industry competitors.
Hertfordshire-based Ocado, which received £11m start up fees from John Lewis in 2001 to administer its online food distribution, is effectively outsourced by Waitrose - classing the whole operation apart from other supermarkets that run e-tail divisions as a 'bolt-on' to usual trading.
Unique specialisation and constant technology upgrades, made possible through serious capital injections from an array of top investors, has created a dynamic Waitrose website that becomes easier to navigate as consumers familiarise with the site.
A recent Which? consumer watchdog survey found that out of Waitrose, Sainsburys, Tesco and Asda websites, only Ocado's Waitrose site offered customer-friendly functionality allowing delivery slots to be booked before shopping and a comprehensive alert system to indicate items out of stock.
Tim Steiner, Ocado chief executive, told FoodandDrinkEurope.com: "We have an 100 per cent CAGR (compound annual growth rate) in the last 4 years."
"We deliver what we promise - very low levels of substitutions and missing items, high quality Waitrose groceries, accurate 1 hour delivery time windows, and no delivery charge for orders over £75."
And rather than using an instore pick-and-pack method favoured by many retailers, Ocado controls specific Waitrose Online warehouses set aside from the supermarket's main supply chain to maximise efficiency.
In contrast Asda and Sainsburys, the UK's second and third largest supermarket chains respectively, process internet orders from the nearest shop for distribution to customers at home.
Market-leader Tesco, in a historic turnaround last month, bought a warehouse by the M25 that will become an internet-only distribution centre for London customers by the middle of next year. The project is likely to cost more than £10m.
Steiner said: "For years Tesco has been saying the warehouse model is not workable, so it is interesting to see it moving that way."
"Whether it will be running the warehouse in the way that Ocado does is difficult to say. It takes an incredible amount of effort to make this work."
Tesco now delivers 170,000 orders a week and covers 97 per cent of the country.
Ocado, which is the UK's second-biggest online food retailer, processes 36,000 orders a week and covers 40 per cent of the UK.
Ocado founders - Jason Gissing, Tim Steiner and Jonathan Faiman - have spent more than £200m since start up, receiving support from John Lewis, Goldman Sachs, Swiss investment bank UBS and Jorn Rausing, head of packaging group TetraPak.
A new Ocado depot opened in Southampton in September, greatly increasing its capabilities for the South East of England.
And the company is looking to open warehouses in Bristol, Leeds, Sheffield and Nottingham in the coming months, after declaring last month that it is now operationally profitable.
