Automating fulfillment with Ocado’s grocery technology – Grocery Podcast S4 E11
David Hardiman-Evans, SVP, North America for Ocado Solutions, dials in from the UK to speak with Sylvain and Mark about how grocery technology is reshaping the landscape.
David talks about Ocado’s origins in 2000 as an online-only company, which aimed at the outset to find a different way of operating. Their approach includes an emphasis on aggregation, automation and grocery technology, for the purposes of optimizing operations and delivering a compelling customer experience.
Much of the benefit to Ocado’s grocery retail partners is around cost reduction, which is necessary to run a sustainable online business. David illustrates with the following example:
“What are the benefits on the economic side? Well one, with greater visibility over inventory control, better forecasting, you can drive much lower waste, for example. Typically in the grocery industry, waste is running at two and a half to three and a half percent of sales. Certainly in our own experience in our UK retail business, it’s running at 0.4% of sales, so very significantly less. And that for many grocers is the difference between running a profitable and unprofitable business.”
In terms of customer experience, David notes that products can be fresher than the shopper could get when going to the store themselves.
Sylvain asks what retailers need to do to adapt to these changes in grocery technology. David observes that it’s often a shift in mindset, which then leads to a forensic approach to each part of the value chain, and provides some examples.
The conversation turns to a comparison of the markets and the grocery shopping experience in North America versus Europe, including both the differing attitudes towards pickup and delivery, and the similarities between customers in all markets. In particular, David addresses shifting attitudes towards grocery delivery as that technology improves.
Sylvain asks about the technical maturity of Ocado’s grocery retail partners. David observes that they tend to be leaders in their markets, with strong supplier relationships, great brand recognition and solid customer trust. “They know their customers well, and they have good understanding and knowledge of customer behavior and trends in their local markets.”
Another very powerful trait, notes David, is that Ocado’s partners are all forward thinkers. Instead of thinking reactively about how to protect their position, they look at what they can do to drive the opportunity.
Tune in to the full episode for more insights into online grocery fulfillment, automation and more.
Check out more great episodes in season 4:
Grocery Retail Valuation with Dan McCarthy
Grocery delivery marketplace dominance with Rick Watson
Grocery retail strategy and execution that grows shopper loyalty
David Hardiman-Evans, SVP North America, Ocado Solutions
David joined Ocado in 2012, and was appointed Senior Vice President North America in 2017. He is responsible for leading business development globally and Ocado business in North America. Previously, David was Group Head of IR and Corporate Finance, responsible for investor relations, financing and broader corporate development activities. Prior to Ocado, David was Managing Director at DC Advisory Partners and Daiwa Securities, advising companies internationally on M&A, financing, strategy and other corporate finance matters. David is a Chartered Accountant, qualifying with Arthur Andersen as part of its Corporate Restructuring group, before moving to Brunswick, the communications consultancy.
Sylvain Perrier (00:15):
Welcome ladies and gentlemen to Digital Grocer, season four, episode 10 (11). I’m your host, Sylvain Perrier, president and CEO of Mercatus. And joining me as always, is our fearless VP of marketing.
Mark Fairhurst (00:33):
Sylvain Perrier (00:34):
Fearless, Mark Fairhurst. How are you today?
Mark Fairhurst (00:37):
I’m great. How are you? It’s good to be back.
Sylvain Perrier (00:40):
Good to be back. The country’s opening up, I think. I don’t know anymore.
Mark Fairhurst (00:45):
Slowly, very, very slowly.
Sylvain Perrier (00:46):
Slowly, very slowly. Yeah. It’s incredible, the pandemic, what it’s done. I’ve completely lost all my hair. I am finding myself looking like you more and more every day.
Mark Fairhurst (00:56):
Welcome to the evolved state.
Sylvain Perrier (00:58):
Thank you. It feels good. I feel great about it. Hey, so Mark, one thing that we’ve been discussing on more than one occasion and certainly in our videos and our podcast, we’ve actually written this on our blog, has been Sobeys and the introduction of the Voila service and the impact it’s had on Canada. And just in general, the world of e-commerce in our country, we’re also talking about Kroger and what they’re doing. We’re also kind of touching base and we did this a little bit, is the company behind the scenes that’s kind of doing all the magic, and that is Ocado. And it’s just amazing. The things that they’ve done around CFCs, around robotics technology, even the delivery trucks, I believe anyways, that comes straight to our doors here in the outskirts of Toronto.
Mark Fairhurst (01:49):
I think we’re both fans of the experience and it’s okay. It’s okay to be a fan of other e-commerce providers, and to point out what they’re doing right.
Sylvain Perrier (02:02):
Yeah, absolutely. And innovation is the key here. At the end of the day we’re all working together to go and service those consumers. So, I’m a big fan of the idea of multiple competitors and innovation and so on. Now to help us dig really deep into this and to learn more about Ocado, we have a really special guest and he is joining us directly from the UK, and his name is David Hardiman-Evans, and he is the senior VP of North America for Ocado Solutions. David, how are you today?
David Hardiman-Evans (02:44):
Very well. Hi Sylvain, hi Mark. Good to see you.
Mark Fairhurst (02:47):
Likewise. It’s good to have you. Thank you for joining.
David Hardiman-Evans (02:51):
I feel as though I’m sitting between the fearless twins right now.
Mark Fairhurst (02:58):
Yes. The joke is we were separated at birth like five years though apart.
Sylvain Perrier (03:03):
Yes, yes. Apparently. No, we get stopped quite often at, at trade shows and at airports and people asking us if we’re related and we’re not. In any case, that’s not why we’re here. It’s not the talk about our lineage. We’re really curious, David, you’ve been with Ocado for quite some time. Can you share with our audience, the history of the organization?
David Hardiman-Evans (03:29):
Yeah, sure. So the Ocado name has been around now for just over 20 years. We started in 2000. We started actually to take advantage of this growing thing called the internet. So we started as a grocery retailer, the only difference between us and many of our competitors who already existed is that everything we do is online and we have no physical stores. I think as we all know on this session right now, grocery retail is very much a high volume, low margin business. And when you add online services to that, particularly online services with home delivery, there’s even more challenge, and particularly from a cost perspective, because all you really are doing is adding costs to provide those extra services. So in the early days, Ocado set about really finding a different way of operating. One which would encourage the domination of cost, but at the same time, deliver a really compelling proposition for the customer, who of course are critical in this.
David Hardiman-Evans (04:44):
And the way you Ocado started to develop was very much predicated on three central tenets, one being the aggregation of activities. Two automating where it made sense to automate, to become more efficient. And three, really embracing technology. Embracing technology for the purposes of optimizing operations, but also to deliver that really compelling customer experience. The only challenge was that a lot of the existing technologies out there and some of the early ones we started to use in the business, just weren’t that suitable for the vagaries and the significant challenges of grocery. And it was in those earlier years that we started to develop our own technologies. So first by starting to write the software required, end to end. So from commerce and all the smarts that go into the commerce platforms, through to all of the operating and control software required in our warehouses, through to be the last mile.
David Hardiman-Evans (05:54):
So route optimization and routing engines as well to really optimize the activities. Those technologies are applied to our retail business that we continue to operate here in the UK. But increasingly in more recent years, we have been applying those technologies in partnership to some of the biggest grocers or around the world. And obviously in north America, you’ve named are our partners with Sobeys in Canada and the Kroger company in the US. And today we continue to evolve that platform, that suite of technologies across with an end to end approach to really develop the ability to have effectively, a very flexible ecosystem of capabilities for our partners’ benefit.
Sylvain Perrier (06:47):
Yeah. I love the fact that you said that flexible ecosystem. I think that’s so critical when you’re servicing large retailers and being responsive to their needs, the dynamics in the market and so on. I’m curious to understand David, and Mark and I have written about the Sobeys CFC. When you drive by it, it’s a monster. And so what’s the advantage of a CFC as well as picking and packing using the robotics technology that you’ve developed?
David Hardiman-Evans (07:18):
Yeah. So it is big. It’s not the biggest one we’ve built. We have one here in the UK that is operating right now, just outside London, which is just over three times the size of the one in Toronto. So it’s big, but there are bigger ones that exist. There are also smaller ones. And I think that smacks of the flexibility here in the capability. So we do build CFCs or customer fulfillment centers, and they do vary quite greatly in size. So they scale down and they scale up. I think coming to the benefits, I think the there’s really two core objectives here. One is all about cost domination. It is around, how do you become more efficient? Because unless you can make changes in the value chain in that value cost chain, ie by reducing the costs, it’s very challenging to run a sustainable online business in grocery.
David Hardiman-Evans (08:29):
So one is around efficiency and reducing cost. The second is around enabling a really good customer proposition. And just a couple of examples of each of those. What are the benefits on the economic side? Well one, with greater visibility over inventory control, better forecasting, you can drive much lower waste, for example. Typically in the grocery industry, waste is running at two and a half to three and a half percent of sales. Certainly in our own experience in our UK retail business, it’s running it 0.4% of sales, so very significantly less.
David Hardiman-Evans (09:16):
And that for many grocers is the difference between running a profitable and unprofitable business. So that’s just one example there. I think on the customer side, having the ability to have much better and come back to stock control visibility over the stock, gives the retailer much more visibility over what products they can show to the customer, the availability and customers having much better surety of getting all of the items that they’ve ordered. And because there’s far fewer touchpoints over the products, having products which are arguably much fresher than they could even achieve by going to the store themselves. So just a couple of the examples across both the efficiency and the customer experience.
Sylvain Perrier (10:07):
That is amazing. So I’m curious in asking you this next question, and we live this when we onboard a new retailer, because it’s a big change when you’re deciding to go do e-commerce. And I can imagine when a retailer partners with Ocado, it’s likely an even bigger change. And what do they have to do to adapt to this technology that Ocado has built?
David Hardiman-Evans (10:36):
Yeah. So it’s a good question, Sylvain. I think the biggest thing is a shift in mindset. And I think look, it’s one thing to believe that e-commerce is just going to be an edge case, a marginal activity around what all grocery retailers have come to know, and that’s the big box supermarket, certainly here in certain markets. I think as we have seen, and I think as the last 18 months have demonstrated, e-commerce was growing quickly anyway, but I think the pandemic has only accelerated this and we’ve seen this across multiple, multiple markets, every market that has organized grocery. So I think there’s a mindset shift to thinking around what are the challenges and how do we embrace those challenges? And we talked about the fact that grocery is very high volume, low margin.
David Hardiman-Evans (11:39):
And if all you do is add more cost bases onto that, then that’s not going to drive to a sustainable model. So it becomes an approach of having a very sort of forensic approach to each part of the value chain and actually, how can technology help to optimize each part of that value chain? Because really you’re trying to address it every element of it very much on an end to end approach. So it’s not one thing to just think about your fulfillment, you’ve got to be thinking about how your fulfillment links into your last mile and how this is all impacted by the customer behavior, how they’re adding to basket. So I think retailers that really sort of embrace that thinking early are going to be much better place to think through both the challenges and how to overcome those challenges and best take advantage of the technologies available.
Sylvain Perrier (12:40):
So I’m curious, and I’m going to be curious to all the way through this interview in any case. Mark and I always talk about this, the European, the UK perspective to e-commerce. And in my travels, whether I’m visiting a Tesco, Sainsbury, or I’m in France, I’m in Auchan. And even when I go to a Migros in Istanbul, I always say to myself, “These guys are at their forefront of innovating in terms of trying new things.” Where I think here in North America, when it comes to grocery technology, sometimes maybe we’re not necessarily the leaders. Now, that might have changed in the last 18 months, but since you’re from the UK, I want to get what’s your perspective when you’re seeing the differences between our two continents?
David Hardiman-Evans (13:39):
Yeah. Sylvain, it’s a great question, and one people often ask. I think the industry itself has obviously evolved over time and continues to evolve over time. You talked about different retailers or different formats being at the forefront of change. I think it’s worth remembering that 50, 60 years ago, the formats that we see commonplace everywhere, ie the supermarket or the hypermarket, didn’t exist then. So there are changes over time and there are channel shifts over time as well. I think when it comes to thinking around North America, there’s a few there’s a few myths that I will refer to. But fundamentally, human beings are very rational. So the DNA of grocery shopping is similar. There are some subtle differences along the way, but fundamentally what do customers want from the grocery experience?
David Hardiman-Evans (14:44):
So they want to have choice. And so they want a good assortment. They want fresh product, they want competitive prices, but they want to good service, and particularly when it comes to online. Because if the service is lousy, no one’s going to use it. And if a service is lousy, but someone else is offering a better service, guess where they’re going to go? So I think that that is common across whether you’re looking at the UK, France, the US, Canada, bear in mind where we’re also partnered not just in the Western world, we have partnerships in Asia and Australasia as well. But the DNA of the customer is pretty similar across those areas. I think coming to some of the suggested differences, as everyone knows, the UK is a small island somewhere across the Atlantic from North America. A small island with a big population.
David Hardiman-Evans (15:45):
And I think that goes to one of the suggestions that particularly in the US and Canada, you’ve got large land masses and more people, but you can spread. Well, in Canada’s case, actually less people and a much larger landmass. But so the density, the suggestion is that the population density is much lower. What is true, however, is that actually across North America, you have pockets of large urban [connovations 00:16:16], it’s not evenly distributed across your great landmasses. So you’ve got very big Metro areas, which are ripe for this sort of service to be delivered there. I think, just to touch on one of the other often purported differences, there’s a common belief that in North America and particularly in the US, people like the motorcar. We do have cars in the UK as well, albeit on average, they’re a little bit smaller. And hence, there has been a common belief that the market is a pickup market.
David Hardiman-Evans (17:02):
It’s click and collect, rather than delivery. I think we’ve always maintained that this is more a function of supply rather than inherent demand for a for a delivery service. And I think, again, I point to what’s happened over the last 12, 18 months. As more and more delivery services have been offered, guess what’s happened? There’s been a very, very substantial, significant pickup of home delivery demand. So as supply has increased, the proportion of customers taking home delivery has also disproportionately increased, ie over-indexed. I think when you think about it, the ultimate service for grocery is direct to the home. Because ultimately, where do customers need and want to have their grocery products? In their kitchens and in their larders in their bathrooms. So that’s where the grocery shop ends up. So ultimately they need it at home. The ultimate services is delivery.
Sylvain Perrier (18:17):
And so one thing that we noticed in using the Voila by Sobeys service, first of all, the quality, you’re right, it’s amazing. Even the drivers are so friendly when they come to your door. And I’m like, “Where’s this amazing service coming from here in Canada?” It’s nothing that I think we’ve ever experienced in this space, in any case. And I would say also, not even in the hospitality space. But one thing that struck me is this was last week I ordered tomatoes. And they came in package quite differently than what you would normally get if I was physically in the store. And are you finding you’re having to work with retailers to kind of reinvent the packaging of products and make it easier to fulfill an order?
David Hardiman-Evans (19:10):
Yeah, some an interesting thing. First off, Sylvain, I’m delighted to hear you’re enjoying … And Mark, you’re enjoying the Voila service. And it’s great to see Sobeys launching and really delighting their customers in the Canadian market. I think the question of working with suppliers is a great one actually. And actually more broadly, with online itself, there are great opportunities to be embracing and working much more in harmony with the suppliers in what is becoming much more of a mainstream channel. And that is anything from actually the way products are brought into the supply chain, and whether that’s a combination of migrating from only having loose product, into having the same product, but in a packaged form. Whether that is actually looking at packaging per se. Because of course, when you’re operating out of warehouse environments, there’s certain considerations that you can make, which could be very beneficial to both the suppliers and the retailer actually.
David Hardiman-Evans (20:32):
So one good example is in a warehouse environment selling to the customer, you don’t need to think about having shelf edge packaging. So if suppliers can take out that layer of packaging, it’s just saving on waste, ultimately. It’s saving on wasted material, which any saving in that respect is a big positive. It’s saving a wasted effort, just removing that redundant material. So it’s saving for the retailers time as well. So, there’s elements there as well. But clearly, there are things that both the retailer needs to be considering about as part of their merchandising function as well, in terms of they will be thinking around how best to cube product into confined spaces. So how best to optimize the storage. Pack sizes, and as I say, the packaging itself.
Sylvain Perrier (21:36):
That’s just fascinating. My last question for you is degree of maturity when you are targeting a specific retailer to work with. Do you find they have to be more mature around technology, more mature around the idea of e-commerce? Or it doesn’t really matter, your team is there to educate them and take them through this journey?
David Hardiman-Evans (22:03):
Yeah. Sylvain, great question. I think without naming specific retailers, per se, if you think about our partners, we are working with partners today who have had very different sizes, all online businesses when we started working with them. So they range from those who had relatively small online activities, to those who had already got multi-billion dollar businesses in online. So the range is quite dramatic. However, they tend to have very common, similar traits in other ways. Firstly, they tend to be amongst the grocery leaders in their market. And with that comes of course, great insights in terms of what they do really well as grocery retailers. So in terms of merchandising, their relationships with the supply base, with consumer suppliers. They obviously have great brand recognition and trust with the customers already, and they know their customers well, and they have good understanding and knowledge of customer behavior and trends in their local markets.
David Hardiman-Evans (23:41):
So that’s one thing that all of our partners have in their local markets. And it’s one of the reasons that we’ve gone very much down this partnership model of being able to harness what grocery retailers are already expert in, in their markets, because grocery is a very localized business. But being able to harness that with the technology that we can bring. I think the other thing that our partners have in common is, I talked before about having this shift in mindset. And they’re all forward thinkers. They’re all thinking forward. They’re not thinking reactively in terms of what should we do to try and protect our position? They’re thinking forward in terms of, how can we really drive this opportunity? Because I see the future, they can see the … I talked about the channel shift over time. They can see that this is very much part of that evolution of changing channels over time. So yes, in terms of existing business, it can vary quite greatly, but in terms of commonality of traits, there’s quite a lot of similarities.
Sylvain Perrier (24:55):
That’s great. David, from one member of the Commonwealth to another, thank you so … I don’t get to say this often, so I have to say it. So thank you so much for joining us on our show. And how do people get a hold of you?
David Hardiman-Evans (25:09):
They can find me on LinkedIn.
Sylvain Perrier (25:13):
Perfect. Thank you. And Mark, how do people get a hold of us?
Mark Fairhurst (25:20):
Very easily. Go to digitalgrocer.com and access our contact links there.
Sylvain Perrier (25:26):
Perfect. Ladies and gentlemen, thank you so much. And don’t forget to keep an eye out for our next episode coming soon.