{"id":223,"date":"2015-09-12T21:31:24","date_gmt":"2015-09-13T01:31:24","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/ocado-finally-makes-online-grocery-retail-work\/"},"modified":"2015-09-12T21:38:15","modified_gmt":"2015-09-13T01:38:15","slug":"ocado-finally-makes-online-grocery-retail-work","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/ocado-finally-makes-online-grocery-retail-work\/","title":{"rendered":"Ocado finally makes online grocery retail work"},"content":{"rendered":"

\"Ocado<\/a>Widespread access to digital technologies promised customers the convenience of grocery shopping without having to go to a store, pick items from store aisles, pack them and take them home. Unfortunately, this service often came at the price of long and\/or unreliable delivery windows, costly delivery charges, unwanted substitutions or stale fruit. Many customers also realized they preferred to select products from the aisles of a store that they were used to rather than to browse and search products in an unfamiliar online store.<\/p>\n

Over the course of its 15-year history Ocado, a UK pure-play online grocery retailer, managed to change the balance of the costs and benefits of the customer proposition and became the world\u2019s largest online-only grocery retailer. For the first time in 2014, Ocado captured enough of the customer value it created to operate profitably despite the headwinds of a price war taking place in the UK supermarket sector [1]. As the scale of the business grows and as Ocado develops ancillary revenue streams, it is well positioned to continue on its path of a clear winner from the digital transformation of grocery retail.<\/p>\n

How Ocado creates value<\/strong><\/p>\n

Ocado\u2019s heavy investment in the user interface has gone a long way to create a user-friendly and personalized shopping experience providing easy access to items the customer bought in the past or may be interested in buying. For many, the ability to find and compare items and to identify deals has made up for the attraction of choosing items from supermarket shelves.<\/p>\n

By designing\"Ocado<\/a> its operations around a pure play in the online market Ocado shortened its supply chain and was able to concentrate its fulfilment at two major fulfilment centers each of which is now shipping about a million items a day [2].<\/p>\n

The scale benefits in fulfilment were augmented by the company\u2019s heavy investment in proprietary technology and data analytics and continuous improvement of its fulfilment and transportation network (the company employed 550 developers in 2014 and boasted that its van routing software made 3m calculations a second to optimize the routes of its van fleet [3]). This allowed the company to succeed in containing the high costs of operations associated with providing timely and reliable service while offering a range of products larger than its traditional competitors. [4]<\/p>\n

Not having to bear the costs of store operations also allowed Ocado to offset, at least in part, the cost advantage of large retailers who could negotiate better terms with their suppliers. In fact, Ocado is already matching Tesco on a broad range of its popular products! As the scale of Ocado in the UK grows, this advantage will continue to diminish [5] and the threat Ocado is posing to traditional retailers will likely increase.<\/p>\n

How Ocado captures value<\/strong><\/p>\n

With its strong value proposition Ocado is attracting increasing numbers of customers willing to hand over to Ocado both the retail margins on its products as well as delivery fees ranging from free to \u00a35.99 ($9.24) depending on the value of the order and the time and day of the delivery. Customers can also purchase a range of annual passes that qualify them for free deliveries on some or all the days of the week. [6] Just as traditional retailers, Ocado also benefits from supplier funding for product promotion.<\/p>\n

The road ahead: online-grocery-retail-as-a-service?<\/strong><\/p>\n

While competing in the UK online grocery retail market, Ocado has developed significant know-how on grocery retail user interfaces as well as the hardware and software needed for effective fulfilment and transportation. Access to this expertise and the physical fulfilment network may be very valuable to other grocery retailers looking to launch or improve their presence in the online grocery retail market and Ocado is currently developing and marketing a platform that will give grocery retailers access to these resources for a fee based on capacity.[7]<\/p>\n

This widely different business model serving B2B customers appears to be a key component of Ocado\u2019s future strategy and global expansion and it will be fascinating to watch whether Ocado will be able to create and capture value in this market just as well as it has done in serving UK\u2019s households.<\/p>\n

####<\/p>\n

[1] Ocado delivers first annual profit, The Guardian, 2\/3\/2015<\/p>\n

[2] Ocado Group plc annual report & accounts, 2014<\/p>\n

[3] Ocado Group plc annual report & accounts, 2014<\/p>\n

[4] Unilever stumbles amid online grocery fees, Financial Times, 8\/12\/2015<\/p>\n

[5] Ocado delivers first annual profit, The Guardian, 2\/3\/2015<\/p>\n

[6] How to avoid delivery charges, The Guardian, 11\/30\/2014<\/p>\n

[7] Q&A: Paul Clarke, CTO, Ocado; InformationWeek; 6\/16\/2015<\/p>\n","protected":false},"excerpt":{"rendered":"

UK retailer Ocado creates a viable online grocery service by reinventing operations around online-only grocery retail.<\/p>\n","protected":false},"author":36,"featured_media":225,"comment_status":"open","ping_status":"closed","template":"","categories":[663,50,48,52,647,51,7],"class_list":["post-223","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-e-commerce","category-grocery","category-ocado","category-operations","category-retail","category-supermarkets","category-winner"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/digital-winners-and-losers\/","yoast_head":"\nOcado finally makes online grocery retail work - Digital Innovation and Transformation<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-digit\/submission\/ocado-finally-makes-online-grocery-retail-work\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Ocado finally makes online grocery retail work - 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