The supermarket sector has been fluid for a while now.
The traditional heavy hitters, the Big Four, have been losing ground to discounters, while new challengers like Amazon are throwing their hats into the ring to ensure that going forward there will be no shortage of choice for consumers.
For a number of years Ocado has been the dark horse of the sector. Despite having no store estate to speak of, Ocado has nonetheless ranked as the UK’s best online supermarket by Which? every year from 2010 to 2015. The technology and logistics behind Ocado have had to remain top notch in order to ensure this, with innovation and “self-disruption” headed by Ocado’s Chief Technology Officer, Paul Clarke.
An software engineer by trade, Clarke had no previous retail experience prior to joining Ocado in 2012, but technology is where he thrives.
“We have lots of people in the business who do have these expertise, and that’s how the two halves work creatively together to produce fantastic solutions,” Clarke said, unfazed about his lack of any retail background.
“Ocado is very different from other retailers. We are this unusual combination of a retail and technology business. What we do, what we’re good at and what we produce is the result of that duality.”
Clarke has not only overseen the continued development of Ocado’s offering, but also the emergence of the Ocado Smart Platform (OSP). The company’s “duality” stems from this: Ocado is not planning to keep its platform and capabilities to itself. The OSP is a service that businesses around the world will be able to utilise.
Of course, this begs the question of how exactly – and why – Ocado reached the point of wanting to sell technology after starting as a solely “retail” business.
“That was always the vision – the founding vision was to do online grocery via the use of significant automation and technology and to use a centralised, automated warehouse type model," Clarke said.
"We’ve obviously evolved the technology and solution, but that vision hasn’t changed.”
Indeed, automation at Ocado has come leaps and bounds. A visitor to the company’s Andover Warehouse will encounter over 1000 "smart bots" organising grocery deliveries. However, the extent of the vision in terms of Ocado’s business practices goes beyond this.
“We make a profit on just about everything," Clarke said.
"The only reason why it’s only recently that we’ve made an end of year profit is the conscious choice to reinvest in building a bigger, better solution.
"Right now we’re building the core of a much bigger business that we intend to become, not just in terms of platform but also capabilities.”
In essence, this is OSP: Ocado’s “capabilities” on offer to businesses wishing to expand their offering into a multichannel world. Clients will have the use of Ocado’s technology, warehouses, staff and vans, rather than having to develop these features themselves.
“The first goal is this marriage of the new ecommerce fulfilment platform and our building warehouses,” Clarke explained.
“The combination of those two is what we call OSP, and we want to allow brick and mortar businesses to move online using our model.”
Clarke drew my attention to Morrisons, which began a 25-year partnership with Ocado in early 2014, becoming “the fastest growing online grocery business on the planet” – albeit at the expense of not being allowed to develop its own separate platform.
“This is the kind of shortcut to online grocery that we want to offer our future OSP customers," he said.
There is also the element of increased competition in grocery ecommerce. Clarke emphasised that Ocado was set on “remaining a retailer”, even with rivals such as Amazon emerging to potentially threaten Ocado’s own business.
“We’ve been, in a sense, waiting for Amazon to roll out their grocery solution for many years," Clarke responded when questioned about Amazon.
"We expected it to come long ago, and it’s not a surprise to us. Clearly they’re a very capable and formidable force, but at the same time the UK grocery market is highly evolved – far from being saturated.
“We win best grocer of the year awards on a regular basis. We like to think we’re doing something right there, and looking at it from the point of view of our OSP business, if it helps there, too, it’s a reason why everyone needs to move online. It’s happening whether you like it or not.”
Amazon is not the only threat to Ocado’s plans for OSP. Simply finding an international partner has been a long and drawn out process. Ocado even missed its own deadline to secure such a relationship after claiming it was in “multiple talks with multiple parties” at the end of last year.
“You definitely shouldn’t misjudge the amount of interest out there via the number of people we’ve signed,” Clarke insisted.
“This is a fundamental part of these companies’ future... We’re in this for the long haul. We want to build the best platform for what we do in the world, and now we want to make it available to key customers around the world.
"It’s not about when we sign the first or the second. It’s about the opportunity that exists on a platform type model, and being able to do it around the world.
“We’ve been talking to those retailers across the planet, apart from Antarctica, for a while now and there is significant interest across many different countries.”
While Clarke’s insistence is encouraging, Ocado representatives have been saying similar things for quite a while now.
Regardless, the fact remains that more businesses are moving into ecommerce, and fewer are doing this off their own backs. The UK Quarterly Outsourcing Index reported that the total value of outsourced retail deals, two thirds of which involved delivering multi-channel services, increased by 116 per cent year-on-year in the first quarter of 2016. Retailers are most definitely making the move, and taking on experts like Ocado to facilitate it.
“It’s the scale of the solution or platform that you have to build,” Clarke explained.
“You need everything – you need ecommerce, you need supply chain management and forecasting, you need real time control of warehouses, you need the whole last mile piece such as tracking vans and doorstep interaction. You need to model this, deal with all the data, you need all the AI and machine learning.
“This is a big ecosystem or platform to create. You’ll be faced with the dilemma, do I built it myself or acquire it? There are a few companies with the technological clout to build it themselves given the race they’re in with their competitors. It’s a big piece of technology that you have to build.”
“The other thing is, it’s a massive risk if you haven’t tried it before. For our future OSP customers, we’re offering not just a short cut but also a massively reduced risk.”
With a clear goal based on platform rather than grocery sales, it would seem Clarke has found a perfect niche for an engineer such as himself at Ocado. Earlier on I briefly mentioned “self-disruption”, which Clarke laid out for me as being at the core of Ocado’s technological innovation.
“As always there are multiple different businesses and streams," he said.
"A huge part of what we do is about sustaining and powering the double digit growth we are achieving with online groceries in the UK, and also general merchandise. That’s a very important part that my division has to support.
“Then there’s another part, which is building the international platform, OSP, and then another is R&D and 10-X [planning to make a product 10 times better, in order to encourage innovation]. That’s where we practice ‘self-disruption’ – trying to disrupt yourself before someone else disrupts you.
“That R&D and 10-X side is very much about building solutions for tomorrow. It’s driven by what we believe will deliver value, but there are non-linear paths to innovation. You have to be prepared for that in order to find some of the most exciting future pieces of technology.”
All things considered, Ocado’s vision seems to hold as much value now as it did when Clarke first joined the company. Its grocery service lives and dies by the strength of its platform, which is constantly being developed.
“We’re building so much stuff here, it’s amazing. It literally is an Aladdin’s cave. I think we’re doing an amazing amount of that," he said.
"Of course, there’s more that we’d love to do with robotics, artificial intelligence and machine learning, and that’s only going to increase. There are things on the horizon like quantum computing that will be important for us.”
It is within the realm of the OSP that things seem more uncertain. Its success will depend on finding the right partners; otherwise for all Clarke’s enthusiasm the platform will amount to very little. Still, as a man overseeing the developmental side of Ocado rather than the business, Clarke has a great amount of confidence for the future.
“I’m very lucky to be running the technology function of a business that really sees technology at the core of what it does," he said.
"It’s very different from the kind of model you hear about at a lot of companies, where it’s all about driving down costs rather than innovation and the sense of the possible.
“Here, it’s a very expansive vision. It’s asking, ‘What can we do to make our technology better?’”