Ocado Solutions CEO discusses approach to pandemic and beyond

Ocado is a brand that has gone from strength-to-strength during the Covid-19 crisis. The online grocer has been suitably set up to cope with the sudden, accelerated shift brought about by pandemic lockdown measures, and this is borne out in revenue figures this year: it reported a 27% growth in in retail revenue for the six months ending 31 May 2020, and earlier this month revealed that sales surged by 52% in the 13 weeks to 30 August.

Yet it still had to pivot substantially to meet the huge surge in demand for online grocery deliveries at the start of the crisis in March, even issuing an apology to customers in early April for delays to orders, acknowledging that the level of demand is “several times our current capacity” with web traffic up to 100-times higher than usual levels.

Speaking during this year’s World Retail Congress, Luke Jensen, CEO of Ocado Solutions, says: “We had to think very fast; the key issue was that there was excess demand versus what we and the industry could supply. And what was very clear was that we had to take action to try to stretch the fulfilment capability line, but we were always going to find ourselves in the situation where we would not be able to satisfy everyone.” Existing and vulnerable customers were prioritised by Ocado at this point.

Jensen adds: "Although Ocado is actually a small player by grocery standards – less than 2% of the market share in the UK – it became a point of focus for consumers as to how they could shop without having to expose themselves by going to shops."

While larger grocers – the likes of Tesco, Sainsbury’s, and Asda – were able to call on a vast range of distribution centres and even excess space in stores to quickly expand their online capacities in response to this demand, Ocado had to think differently. Jensen highlights that it more than doubled the capacity of its Erith customer fulfilment centre (CFC) in the space of just a couple of months, partly through the introduction of more robots. Another major element of this achievement was the use of AI and advanced data analytics to help Ocado adapt quickly, effectively, and crucially, profitably, to a rapidly changing situation. Removing bottled water from its product offerings for a period, for example, increased capacity by 6,000 orders a week, thereby improving “use of our facilities in a radical and substantial way”.

During the pandemic, Ocado has also made big strides to grow its international operations; in particular, the opening of automated CFCs for partner retailers in North America and France. This work is continuing, having secured funding of £1 billion back in June to help it grow partnerships across its existing overseas customer base that includes Kroger, Casino and Sobeys. Jensen outlines that this expansion has led to greater collaboration between retailers in different regions. “One of the interesting side effects we’ve had with this group of partners around the world is that it has created a community for leaders to get together and share their experiences,” he explains. Jensen adds that this has primarily been around “how to create online capacity but doing so in a way that’s sustainable and profitable and gives a great customer experience”.

This kind of improvement mindset is especially pertinent as we look ahead to the future. As has been consistently found in a number of customer surveys in the past six months, customer behaviour is set to change permanently as a result of the pandemic. Jenson notes: “Our observation pre-crisis was that the big tipping point for consumers is once they’ve shopped three to four times online they will carry on regularly, so you get that demand that really sticks… it’s definitely a new world we’re in where online has a different role in how people shop.”

Unsurprisingly therefore, Ocado is preparing to expand its business much further, helped by new partnerships, the latest of which is its joint venture with M&S, which went live on 1 September. Jensen adds: “For us as a business it’s about getting ready for much more growth, both in the UK and internationally. We were already on a super steep curve and we’re now on an even steeper curve.”