Ocado CEO: ‘The World Has Changed’

The onset of the COVID-19 pandemic helped to double the size of the online grocery market in the United Kingdom and sextupled U.S. virtual grocery sales—“and there’s more demand behind that,” insisted Tim Steiner, CEO of the British online grocer Ocado.

Speaking in a conference call reviewing the firm’s first-half financial results, Steiner asserted that the online shift—driven by a fundamental change in how consumers think about buying groceries—was sustainable, and boldly predicted that over time, online penetration could reach as high as 75% to 80%. That would be astonishing for a market like the U.S., where online grocery sales were estimated to account for less than 5% of the market five months ago. But such a shift would consolidate share among leading online players, Steiner noted. Ocado runs its own e-commerce business in England and is partnering with global retailers elsewhere—including Kroger in the U.S.—to exclusively license its robotics and software, which it said will enable those players to conduct online grocery profitably.

“We’ve seen significant and permanent global channel shift. The world has truly changed,” Steiner said, according to a Sentieo transcript. “Here in the U.K., we’ve seen the market double in a few months. That’s 15 years of growth in less than 15 weeks, and it’s a global trend. In the U.S., the market year on year was up six times. In China, we saw triple-digit sales growth.”

This growth came in spite of capacity constraints that in the U.K., for example, restricted Ocado from onboarding nearly as many customers as it might have, and while limiting sales of certain items that widespread panic buying made unavailable.

At the same time, Steiner cited signals indicating the shift to online was sustainable, saying customers were buying bigger baskets and taking deliveries throughout the course of the week, which helps companies such as Ocado more efficiently deploy resources. More importantly, it’s become a habit. “We know historically that customers that have done three to five shops online, in a three-to-four month time frame to historically stay with the channel,” Steiner said. “That is the hurdle you get over to make it more of your kind of common practice, to make it more of a habit.”

Consumer safety concerns are helping to reinforce that, Steiner continued, likening the growing habit of online vs. in-store shopping to that of business executives traveling today by private jet rather than commercial—each are paying up for more safety. “What we know today is that consumers have got a much better understanding of viruses and the transmission of disease. And everybody is taking less risk than they did historically," he said. 

All this, Steiner noted, presents opportunity for Ocado and its partners—licensers of what the company calls its Ocado Smart Platform, or OSP, to “dominate their markets” as brick-and-mortar weakens and competitors fall away.

“What we’ve seen so far is the market go from single-digit percentages to teens. But we can see demand for that to double again. When we see the market going to 20% to 30%, there’s a big opportunity here for our clients on OSP to expand profitably and sustainably,” Steiner said. “And as they expand profitably and sustainably, the economics of the big brick-and-mortar stores will start to be challenged. And over an extended time period, we see less opportunity for them going forward. Our clients can grow and take-up and win market share against their competitors. The opportunity here is potentially as large as 75% to 80% of the market going online and that online share to be significantly consolidated in terms of who holds it.”

Kroger is currently in the process of building the first of as many as 20 U.S. facilities to house and operate Ocado’s robotics. The first of these are expected to open in Ohio and Florida next year. But the Cincinnati-based company is already working with Ocado on certain elements of the OSP, which also include a store-pick program, and smaller facilities than the 200,000-square-foot central warehouses that house its robotics. An on-demand fast delivery program quietly rolled out last year called Kroger Rush is thought to be one of them.

Steiner said COVID has triggered more complexity and some short-term delays in getting facilities built but said the company was working on programs such as online training to speed the process. He described Ocado’s first North American facility—a warehouse near Toronto built in partnership with Sobeys that opened last month—as coming in ahead of schedule.

Ocado said its sales for the six-month first half were up by 27%.