Ocado Flashcards
Two avenues of Ocado Group
- Wholesalers (Suppliers) → Ocado Retail → Consumers (Buyers)
- Ocado Solutions (Suppliers) → Retail grocery stores (Buyers)
main problem in Ocado case
How can Ocado remain competitive in the growing online grocery industry, facing the surge of new players entering e-grocery? Which strategy should Ocado adopt to achieve sustainable growth going forward?
Ocado market
- Global online retail market: 3.4 trillion USD
- Uk online retail market: 153.61 billion USD (3rd)
- China tops the industry at : 1.8 trillion USD (1st)
- Uk market annual growth: of 14.7% (2020)
- Global market annual growth of 16.5%
- Leading regional growth of 21..5%
industry trend
- Concentrated in urban areas
- Negative/low operating margins
- Centralized fulfillment facilities
- Third party involvement and potential threat
-Amazon’s acquisition of Whole Foods that spurred the first wave of retailers to sign on with Ocado
oMulti-point competition
-It had taken 20 years for ecommerce to capture 7% of the UK grocery market
oFrom mid-May to mid-July 2020, that rose to 13%
oSimilar around the world
-Mostly younger and wealthier people who bought groceries online
-Delivery was more common approach globally
-Customers increasingly expected a seamless experience and rapid delivery
Porter’s 5 forces: new entrants
Threat of new entrants: intermediate-high
- High threat from brick-and-mortar firms
- Willingness for improvements.
- While Covid and what it invited with grocery ecommerce that would attract new competition, Ocado had a big head start
- Entry barriers were high
o Need huge tech investments and physical resources
o Complex logistics network needed to be capable of supporting delivery of perishable foods
threats
digital giants
->omnichannel platforms
third parties
–> user friendly
end of pandemic
–> uncertain consumer behaviour
China
–>new industry standards
Key success factors
- investment in logistic and distribution
- enhance online platform
- diversification
- customer loyalty
strengths
- first mover advantage
- proprietary technology + innovation capabilities
- cost advantage (retail)
- strong distribution and logistics
- good reputation (delivers on time, everyone hails their strong tech + innovation)
weaknesses
- lower brand recognition
- organizational structure
- single channel
comp advantage
- data and technology
- strong logistics
- scalability
- innovation
- ->intellectual property
business level strategy
Retail Strategy: Integrated
- Efficiencies in key metrics
- High customer satisfaction
- Affordable prices
- Efficient large scale structure
Solutions Strategy:
Differentiation
- Innovative technology
- Head start in the industry
- Unique offerings
- Proven to provide value
corporate level strategy (overview)
- Ocado solutions
- zoom
- food supplier ventures
- geographic diversification
-Strong economies of scope across Retail and OSP
oLots of already shared knowledge
-Zoom
oOcado Retail’s platform in London
oAnd “immediacy service”
–>Consumers pay premium for delivery within 60 minutes of ordering
mergers and cooperative strategy
Waitrose :
Non-equity alliance
-expertise helped source product
Marks & Spencer: Joint Venture - Secure branded items and suppliers -Included commitments to build 8 CFCs for Ocado Retail over 12 years - Extra funds to expand Ocado Solutions
Ocado Partners:
Non-Equity Alliances
- Monetary compensation
- Geographic expansion
Resource based view
Financial Resources
- Had poor IPO –> one of worst debuts on London Stock Exchange
- Kroger deal sent Ocado shares up 44%
- Has big addressable market ($900 billion)
Human Resources
- Co-founder and CEO Tim Steiner
- capability for innovation signals strong intellectual property
Physical
-Automated fulfillment center (CFCs)
o Used automation, scale, and smart software to be efficient and accurate
o Andover specifically was strong
Technological
- “even the skeptics fid not dispute Ocado’s skill as a technology house given its prolific rate of innovation and the efficiencies it achieved in key ecommerce metrics)
- “they always were superior in surveys. We tried to figure out if they were paying or training better, and the answer was that because they had better tech, they were less likely to show up at a doorstep with missing items or substitutions, and more likely to be on time”
- Kroger also remarked how far ahead they were in technology innovation and efficiencies
Reputation
-Strong
-Kroger CEO: “If we were even world class, at best it would take five years to catch up to where Ocado is today, much less to where Ocado is going to be in five years”
-very high consistency in deliveries
-But bricks and mortars much better at getting brand love
oWorking on new awareness/branding strategy to address this
–> the recognition rather than the reputation is the problem
Organizational
- Had some internal culture struggles before but generally, strong
- Competitive and innovative culture
gen notes/conclusions on Ocado internal factors
- Ocado Retail’s supply chain costs were 0.5% of sales
- -> efficient
- had net positive cash in first half of 2020 (good sign)
- net income in 2019 was negative
