Online supermarket Ocado thinks it can use the Web to change the way people shop for food. We visit its state-of-the-art warehouse to find out how it plans to win the grocery revolution. By Kim Gilmour
Being at Ocado's Hatfield warehouse is like being a kid in a slightly cold, neon-green sweet factory.
It's hard not to be mesmerised by the vast quantities of potatoes, Coco Pops, Pot Noodles, eggs and onions. Ten thousand different kinds of fresh and pre-packed groceries fill the aisles, waiting to be delivered to potentially millions of UK homes.
Forklifts scuttle round, conveyor belts crunch, robots replenish shelves and monorails ferry grocery orders to packing stations around a giant network of tracks and lifts. Dozens of people pick and pack groceries into green crates, called totes.
Ocado is unusual in the post-dotcom era in that it's an online supermarket which, unlike the Web operations of Tesco, Sainsbury's and Asda, doesn't have any stores in the real world. But it does have some distinguished retail parentage--Ocado is run by the John Lewis Partnership, which owns around 40 per cent of the company and sells its Waitrose-branded products through the warehouse.
Ocado launched at the beginning of 2002, and analysts were sceptical of the massive investment and running costs required to sustain its operation. Investment currently stands at 240 million [pounds sterling] and, although Ocado has yet to make a profit, annual sales have jumped from 25 million [pounds sterling] to 70 million [pounds sterling] in the last year.
The week we visited, Ocado had fulfilled a record 12,000 orders from its 1.2 million square foot warehouse. Only 10 per cent of this space (which is spread over four floors) is currently used, but it's vital Ocado has plenty of room to grow. Now the company's challenge is to maintain its focus on customer service while growing business by five per cent a week.
The matrix loaded
Paul Stewart, Ocado's operations controller, is on hand to show us around the vast matrix--but not before we don some trendy safety jackets and hair nets.
At the 'inbound' area, goods from Waitrose arrive in metal cages. Other fast-moving items arrive direct from suppliers wrapped to wooden pallets.
"This is superstar Anne," says Stewart, as we join a woman busy grouping incoming goods. She's at the decant station, scanning in bottles of newly-arrived Robinson's fruit juice and placing them into trackable totes.
The system knows where the usual pick point is for each product, and the tote travels along a conveyor belt until it reaches an imposing 14 metre crane which suddenly kicks into life over a spectacular grid of totes, automatically slotting the newly filled tote into any one of more than 5,000 pick points, or to a nearby reserve location.
Take your pick
We skip off to Level D, which houses Ocado's 'core chill range'. Here we find shelves of milk and bags of Waitrose salad, all held in the now-familiar green totes. More popular products are housed on levels B and C, while the ground floor is used for slowe-moving, manually-handled products. The plan is to automate this level as Ocado's business grows.
Ocado's warehouse management software, from Descartes Systems, sorts customers' orders according to the levels on which their goods are stored. It then generates pick lists for each level, which are transmitted to radio frequency wrist mounts worn by the pickers as they push blue trolleys along the aisles. Each trolley holds six empty totes--until the pickers fill them up.
The wrist devices tell the pickers what and how much to pick, which trolley tote it goes in, and how long the pick assignment should take. Each trolley tote holds part of a batch of orders for up to eight different customers. So with six trolley totes filled, the trolley can hold orders for up to 48 customers.
Stewart points to a tote sitting on a trolley. "That tote will go down to a packing station downstairs and be married up with all the other totes from the other aisles and floors [for the same customers]."
Finger-attached scanners let the pickers scan the products they've picked from the totes on the shelves. Once a shelf tote is empty, the picker tells the system so, puts the tote on the floor and--voila!--behind the shelf a full tote is ready to be pulled forward. Ocado's cranes will then automatically find the next tote in the matrix to replenish it with.
While all this is going on, overhead monorail cars are travelling around the warehouse in 'waves' lasting two and a half hours. As we're shown around, wave 20, the last wave of the day, is in progress.
The monorail's job is to collect the orders that have been picked from each floor into containers--the trolley totes are loaded into specific pigeon-hole like slots. Each person's order will now sit in one container, although still split across separate totes with other customers' orders at this stage.
After the containers are offloaded from the monorail cars, a lift takes them downstairs to the packing area and the totes are taken to packing stations where the components of each customer's order can be matched up.
Packing up
The goods are packed in colour-coded bags, depending on whether the goods that have been ordered are frozen, chilled or 'ambient'.
Stewart points out a woman in a purple jacket. "As Karen scans the items from each container's totes, she's told which customer it belongs to and loads it into the correct bag." Karen then groups the bags into a new set of multi-coloured totes. This helps the delivery person locate an order before delivering the shopping to a customer's home.
The totes are loaded onto 'frames', the front halves of which hold chilled products, with the back halves holding ambient products. The frames are then rolled onto 'pods', which are in turn fork-lifted onto little Mercedes vans for direct delivery--or onto larger lorries, which hold several pods at a time, for delivery to one of Ocado's outlying 'spokes'.
These spokes are pick-up depots for vans delivering to areas outside central London, such as Weybridge and Rugby. All the vans are equipped with satellite navigation to make it easier for their drivers to deliver the bags of groceries to the right locations.
Special delivery
Ocado isn't the cheapest online grocer around--that crown belongs to Walmart-owned Asda. An average Ocado order costs 100 [pounds sterling], and the store appeals to young, tech-savvy families who need to buy an endless supply of nappies.
For next-day delivery, orders must be placed by 4pm. Occasionally the computer gremlins strike and an item a customer has ordered (which is supposedly in stock) won't be available. Ocado has a substitution average of around two per cent of orders--but claims its competitors' hovers at around 15-20 per cent.
When my own Ocado order arrived (a skin of the teeth seven minutes before my hour-long slot expired) all my goods were there, with no substitutions. Amazing.
I tell the driver I'm writing an article about his company. "Make sure you mention Super Mario," he says, pointing at himself.
He does look a little like Mario, but I think the green uniform he's wearing is a bit more Luigi.
OCADO--THE BUSINESS
Jason Gissing is the Willy Wonka of grocers. He co-founded Ocado's whopping warehouse with fellow ex-Goldman Sachs directors Tim Steiner and Jonathan Faiman, and is now its chief financial officer. Gissing is convinced his baby can turn a profit within 12 months.
"There is nothing you have seen today which is revolutionary in the sense that it's been created from scratch," Gissing says later as we chat to him in Ocado's cafeteria. "Nearly everything you saw in there comes from another industry, and works in that industry--whether it's car manufacturing, food processing or just regular industrial businesses that move goods around."
The enthusiasm of the Ocado team is infectious. "Look, we're not perfect," Gissing admits. "You can't have this type of growth and not have problems occasionally. We've had days where we've had to reschedule deliveries. We've had complaints from customers. And statistically, we do get nutters. We get people calling up saying, 'you've poisoned me', 'I've found moths in my salad' or 'I found gerbils in my cereal'."
Ocado was created with financial help from the John Lewis Partnership (which owns Waitrose) as well as investment bank UBC and other private stakeholders. By mid-2003, the current round of investment valued Ocado at 240 [pounds sterling] million. If its own figures of 5 per cent growth per week are to be believed, how on Earth will it cope with its own success?
Gissing says Ocado is always reacting to dynamic growth. The advantage of being a startup, he says, is that you can quickly implement things from the ground up--without having to waste a lot of time justifying changes, as you may need to with established businesses. "So we are flexible, although it makes for a somewhat stressful work environment for some of the people around us!"
Ocado currently delivers to around 4.6 million homes around Greater London, Hertfordshire and the Midlands. There are no plans to build another big warehouse until the current one works perfectly. Neither is there any intention to diversify and sell things like books, electronics or CDs--although Gissing doesn't rule this out for the future.
So, what's with the name Ocado? Well, apparently, it has no meaning, but simply calling the company Waitrose Online (it has its own online store anyway) would make it seem like "just another supermarket" offering.
If Gissing's dream comes true, the swirly Ocado logo will one day be as familiar as Nike's 'swoosh'. "I am confident that we're going to have our vehicles, and even our own label food at some point, that just has our emblem on it--and people will still know exactly what it is."
Copyright Internet Magazine/Emap/Kim Gilmour 2004
Posted by kimgilmour at June 4, 2004 08:37 AM