Ocado Technology COO talks life after the Waitrose supermarket deal

It was announced earlier this year that Marks & Spencer will buy a 50 percent share of Ocado's retail supermarket business for £750 million and launch its first home delivery service from September 2020 at the latest, which is when Ocado's iconic deal with Waitrose expires.

Scott Carey May 23rd 2019

It was announced earlier this year that Marks & Spencer will buy a 50 percent share of Ocado's retail supermarket business for £750 million and launch its first home delivery service from September 2020 at the latest, which is when Ocado's iconic deal with Waitrose expires.

In its financial results for 2018, Ocado was clear that it sees a stronger future as a technology vendor than as a retailer. Gross profit for the year was up 10.8 percent year-on-year. According to the document this was "a higher rate than revenue reflecting faster growth in solutions revenue with currently higher gross profit margins compared to retail".

Ocado CEO Tim Steiner said at the time: "We now have in place a platform for significant and sustainable long-term value creation as the leading pure-play digital grocer in the UK, a world-leading provider of end-to-end ecommerce grocery solutions, and as an innovative and creative technology company applying our proprietary knowledge to a range of challenges."

By handing over a chunk of its retail business to M&S, is Ocado doubling down on being a pure-play technology provider? Speaking with Computerworld UK last week, Ocado Technology chief operating officer Anne Marie Neatham admitted that Ocado, as a brand, has long been tied up with the Waitrose relationship here in the UK - but pointed to its international reputation as a pure-play technology provider.

Ocado Technology has expanded rapidly over the past two years, tying up with various supermarkets to provide technology and automated logistics services for Sobeys in Canada, Casino in France, Bon Preu in Spain, ICA in Sweden, Coles in Australia and Kroger in the USA.

"At the moment we provide an end-to-end solution and that is how everyone has bought it," Neatham said. "We calculate that you would need over 20 products from other vendors to satisfy what our products do, so that whole end-to-end solution from warehouse to robotics to logistics to the software layer."

This is called the Ocado Smart Platform, and Neatham said there are no plans to break it down into more modular chunks at this time.

Ocado has always been a technology company at heart, as it seeks to innovate across the value chain of the grocery business and create efficiencies for itself and its clients. This includes its highly automated fulfilment centres, where robots can pick a 50-item order in five minutes as they zip around the warehouse floors in Hatfield, Dordon in Tamworth, and Erith in London.

Nearly all of its technology, from the ecommerce frontend to the last mile of delivery and all of the data and insight that generates in between, has been developed in-house and the team is already responsible for 64 patents across these various areas.

Focus areas

Separating the two sides of the business further should allow for greater focus from Neatham and her team.

"I think that the focus at [Ocado] Technology has always been an organisation that develops products to serve a grocery company," she said.

"We still have one arm of this business as a big grocery function, and that's great to show us what works and what doesn't."

However, the focus for the technology arm of the business will now be on driving these capabilities out to a growing set of clients, rather than simply serving the grocery business here in Britain.

This includes an innovation drive that revolves around "extending the focus and capabilities of those products and making those offerings smarter".

The ultimate aim is to reach a point where customers don't even have to order groceries, as the system can preempt what items you need and when. This sort of capability will require serious investment in the internet of things (IoT) and artificial intelligence technology though.

Analysts at Peel Hunt recently published a bullish investor note that deemed Ocado's technology to be superior to Amazon's in Europe. The note advised clients to invest in Ocado, saying that the analysts believed "the management has the vision to take Ocado's success today to become the 'Microsoft of Retail' tomorrow".

Neatham admitted she was "pretty happy about" the analysts' verdict before reiterating: "We have always viewed Amazon as a great competitor and if they are behind now they will be ahead of us soon.

"I think they are behind on grocery and the hardest area to break into was the one we have been able to crack. I don't doubt they will eventually have a great grocery offering and that keeps us on our toes."

Recruitment

Of course Ocado will need to continue hiring the best talent in order to compete with Amazon and build out its technology function, something Neatham believes is always going to be a challenge in the current war for talent. The headcount at Ocado Technology has increased by 76 percent in the last three years, including 300 programmers hired in the last financial year, with little sign of slowing down.

Specialist skills, like machine learning expertise, are harder and harder to come by, and Ocado is looking to develop its talent from the inside. "Our approach has been to use people inside the business to transfer into those areas with training and coaching," Neatham said.

"We work very hard on culture and have an unusually high rating of people that say they are proud to work here, at 80 percent across the company," she added.

Lastly Neatham pointed to Ocado's culture of risk-taking. "Culturally this might be a key difference for us: people are encouraged to take a reasonably high level of risk," she said. Let's see if it can pay off now that the team is left to focus on technology, not groceries.