Disrupter technology keeps Ocado ahead of the game

Paul Clarke, director of technology at Ocado, the UK-­based online grocer, says he sees himself not only as the company’s IT boss, but also as the head of a high-­tech group that just happens to work under the auspices its parent company.

That’s what it takes, he argues, to be disruptive ­and stay that way in the cut­-throat business of grocery retailing.

That may sound a rather grand assertion. It is the kind of talk that goes down very well with the technology faithful at major IT conferences ­but Mr Clarke has legitimate reason to make this claim.

That is because Ocado can argue it has achieved clear progress with its two-­pronged business model. First, it is an established seller of groceries over the internet, a business that brought it £7.2m of pre-tax profit in the year to November 30, compared with a £12.5m loss in the year before.

Second, it also licenses to other retailers the proprietary technology it uses to run its own operations. In effect, Ocado is also an IT vendor and Mr Clarke leads this side of its operations, Ocado Technology.

Its first venture was a tie­-up with Wm Morrison, the UK’s fourth-largest supermarket chain, after Tesco, Sainsbury’s and Asda. This deal in January 2014 enabled Ocado to provide the technology platform that its online service, Morrisons.com, needed to catch up with rivals.

When Ocado finally reported its first annual profit in its 15­-year history in January of this year, it was thanks in part to the £45.1m in fees and costs it charged to Morrison to run its online service over the course of the year.

But the very next day after the Morrisons.com launch, Mr Clarke and his team embarked on an ambitious project to rewrite, from scratch, the end-to­-end software it uses to run its own, and Morrison’s, online grocery business, so that this can run in the cloud. At the same time, they developed a new hardware platform for automated warehouses known in “Ocado-­speak” as customer fulfilment centres (CFCs).

This combination of software and hardware forms the Ocado Smart Platform (OSP), which the company is now seeking to license to overseas retailers.

“We are morphing Ocado to become the fusion of a technology business, a retailer and a platform business,” says Mr Clarke.

That makes the OSP a work in progress, both as a commercial proposition and as Ocado’s own in­-house technology. While its existing automated warehouses are “already best of breed in the world”, he says, two new “fulfilment centres”, in Andover and Erith, are under construction and must “go live” on even more modern technology.

“As a disrupter, it’s all about staying disruptive . . . before anyone else disrupts us,” he adds.

This mission has taken on a new urgency since retail specialists Kantar Worldpanel forecast that Amazon, the US-­based online retail giant, would introduce Amazon Fresh, its grocery delivery service, in the UK in 2016.

Amazon, like Ocado, uses a huge range of sophisticated automation software and robotics in its warehouses. This enables it to process incoming orders and pick products for outbound deliveries with great efficiency.

To help keep it ahead of the game, Ocado is already working with a pan­-European consortium of research universities on two projects that the EU is helping fund.

The first is called SecondHands, to develop a maintenance robot to work alongside the engineers who look after fulfilment centres, by fetching tools, holding objects, cleaning machinery and performing engineering tasks.

“What makes SecondHands so ambitious is that the robot will learn by observing human engineers and then anticipate how to help them perform tasks,” says Mr Clarke.

The second project is Soma, which focuses on developing a new form of robotic gripper that will be able to pick up products enclosed with a wide range of different materials and shapes­ such as cartons, boxes and bottles.

No discussion of automation or robotics can avoid the debate over whether these technologies are a “net creator” or “net destroyer” of jobs for humans. Mr Clarke does not evade the issue.

Most of the leading UK supermarket chains still fulfil online orders by having human employees pick goods off the shelves of bricks-­and­-mortar retail outlets or those of “dark stores”, dedicated to their online businesses.

This model falls clearly short of Mr Clarke’s ambition.

“Ocado started out as a business determined to use automation for the fulfilment and delivery of groceries, when all the incumbents were convinced that doing it manually was the only sensible way,” he says.

“As we have developed as a business, we’ve created 10,000 new jobs,” he adds. “It’s missing the point to suggest that if we didn’t have automation, we would employ more people because that fails to recognise that we also wouldn’t have a business of any significant scale, so we wouldn’t have a need for a large number of employees.”