Kroger Rush Could Be Ocado Forerunner

Initial tests of Ocado Zoom—the on-demand “small-shop” version of Ocado’s grocery delivery platform—has been a “massive positive” for the British online retailer, officials said, garnering enthusiastic reviews from shoppers and basket sizes well above initial estimates.

Moreover, the concept may already be gathering speed for Ocado’s forthcoming expansion to the U.S.

Ocado launched Zoom earlier this year in the U.K. Officials then said the service—utilizing a micro-fulfillment center fed by its larger robotic counterparts—could be expanded to retailers licensing its technology through Ocado Solutions. Those retailers include The Kroger Co. in the U.S., which is building the first of as many as 20 U.S. fulfillment centers in partnership with Ocado and recently soft-launched a service providing a comparable experience to Zoom, called Kroger Rush, at a few stores in the same Cincinnati trade area its first Ocado warehouse will serve when it opens. Kroger and Ocado this week separately announced they would build a fulfillment center near Atlanta.

Both Zoom and Rush work via mobile applications. The descriptions and screenshots of the apps on the Google Play and Apple Store sites look remarkably  similar. The Cincinnati Business Courier last month quoted Jessica Adelman, Kroger’s VP of corporate affairs, as saying the Rush service and forthcoming Ocado warehouse is “an area where you’ll possibly see those worlds dovetailing. Maybe Ocado robots will do the picking for a Rush solution.”

But with both Zoom and Rush services still in the early testing stage, neither Ocado nor Kroger have explicitly acknowledged a connection yet.

Ocado’s main business is building and operating—and outside of its native U.K., licensing—massive grocery warehouses utilizing proprietary robotic pickers that its officials say enable online grocery shopping to be profitable—a trick that has thus far eluded most all of the significant participants in the growing field.

Observers have noted, however, that Ocado was primarily built for next-day grocery deliveries and until Zoom, lacked a means of providing a “need-it-now” offering.

Speaking this week in a conference call discussing Ocado’s financial results, CEO Tim Steiner said with basket sizes coming in 30% above initial expectations and orders tending not to cannibalize Ocado’s other shops, Zoom is a “phenomenal service” with the capability to also be profitable.

“Most of the immediacy service we’ve seen ... launched around the world, have not been sustainable, and services have not had economics that will work,” Steiner added, according to a Sentieo transcript. “And we believe that Zoom will have sustainable economics of scale.”

Steiner said cash margins for Zoom orders have been slightly higher than its grocery business, overcoming slightly higher pick and delivery expenses with higher delivery fees and a smaller delivery radius. He did not disclose the actual basket sizes beyond saying they came in about 30% higher than initial expectations on what he called “small shops” of between 20 pounds and 55 pounds (about $25 to $69). Zoom offers about 10,000 SKUs, although Steiner said he expects the selection to grow to 15,000 over time.

“Overall, Zoom is both a massive positive for Ocado.com in the future but also will enable our partners to meet their customer needs and shape the future shopping habits profitably, which is I think the keyword that's been missing from immediacy offers to date,” he said.