U.S. on Wrong Side of the Road in Online Grocery, Ocado Exec Says

You’re doing it all wrong, America.

That’s the message from Tim Steiner, founder and CEO of the British e-commerce grocery retailer Ocado. In a forceful presentation Monday at Shoptalk in Las Vegas, Steiner made a case for Ocado’s proprietary approach to grocery e-commerce, utilizing automated warehouses and a hub-and-spoke delivery system he championed as a faster, cheaper and more profitable solution to grocery e-commerce than the prevailing options in the U.S. of click-and-collect and crowdsourced picking and delivery.

Along the way, Steiner said, Ocado is smashing what he called long-held myths of online grocery, including that running such a business cannot be profitable, and that only certain categories of the grocery store are vulnerable to online shopping.

Ocado is a retailer in the U.K., but also licenses its technologies to grocers including Morrisons in the U.K., and more recently announced deals with Groupe Casino in France and Sobeys in Canada. Ocado has long expressed a desire to strike a deal with a U.S.-based grocer, but despite widespread speculation, none have been announced yet.

Ocado’s massive warehouses, where hundreds of robots running on tracks sort through stacked bins of products to help assemble orders, are the “largest grocery stores in the world,” doing more than $1 billion each in sales, Steiner said. They enable the company to run a profitable e-commerce business with larger assortments and equal prices to the leading grocer in the U.K., without upcharging for items, and with delivery fees that work out to about $2 per order.

“Can you imagine having a service offered to you of the broadest range of groceries, of the highest quality, offered at the prices of Walmart, with a $2 delivery fee, delivered in a one-hour slot of your choosing, from 5:30 in the morning to 11:30 at night?” Steiner asked. “It doesn’t exist in your market. And when it does, the market will grow very dramatically.”

That explains in part why online grocery accounts for about 7% of the overall U.K. grocery market, vs. the U.S., where estimates have it somewhere around 2%. Steiner said 40% of all customers in the U.K. regularly shop online, and for a greater breadth of items than in the U.S.

“The myth perpetuated by what happens here in the U.S. by the likes of Amazon is that people won’t buy fresh food online. They’ll use it for dishwashing powder, cat litter, dog food, water and soft drinks. That’s just not true,” he said. “We have the highest penetration of fresh food sales of any retailer in the U.K.—44%  of what we sell every week comes out of the fridge side of the warehouse … and when you add in fresh bakery and produce that lives in ambient [temperature] like potatoes and bananas, over 50% of our sales are fresh.”

By utilizing large, efficient warehouses, Ocado can assemble a 50-item online grocery order and have it ready for delivery in about 15 minutes—or about an hour faster than the same order would take in a grocery store, he said. These go onto delivery vans dispatched in a spoke system that can each do about $1.5 million sales a year, or about the annual volume of a Dollar General store.