Investing to Innovate

26 July 2018. Published by Mark Crichard, Partner

Ocado aims to "change the way the world shops" with B2B technology offerings for retailers

Ocado has seen the value of its shares rise 250% over the past year. Even the announcement of half year losses of £9 million earlier this month does not appear to have significantly dented investor confidence.

Ocado's success is at least partially down to its heavy re-investment in developing e-commerce and supply chain technologies, which can be sold to other retailers. Ocado's CEO Tim Steiner believes these technologies will "change the way the world shops".

But how exactly is Ocado investing to innovate, and what does its pivot from online grocer to B2B technology supplier mean for the retail sector overall?

Ocado: online grocer turned technology service provider

Ocado has heavily invested in its business Ocado Solutions, and its flagship product Ocado Smart Platform, a managed service and proprietary solution which retailers can use to roll-out and operate an e-commerce business.

To start, the Platform provides a sophisticated customer facing app, allowing retailers to display products and make online sales. But the offering doesn't stop there; Ocado also installs robotic warehousing capabilities within the retailer's warehousing and can combine those with technologies to also automate deliveries.

Essentially, Ocado Smart Platform gives retailers a flexible and cost effective solution to launch into the online grocery market, while capitalising on Ocado's own expertise and avoiding the need for significant capital investment; a genuine solution for traditional, 'bricks and mortar' retailers struggling to survive in a digitalised era of retail.

The appetite for this tech-powered platform has been huge and has propelled Ocado into the FTSE 100. UK chain Morrisons, French supermarket Groupe Casino, Canadian retailer Sobeys, and US groceries giant Kroger are all now using Ocado Solutions to provide services to their own customers.

Who else is investing in retail tech solutions?

Ocado is not the only online retailer looking more like a technology company, than a retailer.

Amazon is an obvious example; the internet giant, which began life as an online bookstore, is now better characterised as an e-commerce and cloud computing company. Amazon's growth is, in part, owed to its own heavy investment in a wide spread of tech solutions, including those targeted at the retail sector.

Earlier this year we reported on Amazon's launch of Amazon Go, its first check-out free store, providing consumers with a futuristic shopping experience in which cameras and sensors are used to charge customers for the products they pick from the shelves.

It's yet unclear how Amazon will decide to best monetise Amazon Go, but while many believe the obvious answer is for Amazon to open a fleet of Go stores, others believe licensing the technology to traditional retailers (in a similar fashion to Ocado) could be a more lucrative step.

Amazon is no stranger to licensing its solutions, in the retail sector and otherwise; they have previously done the same with Fulfilment by Amazon (a suite of fulfilment and logistics solutions to assist retailers to provide services to consumers) and its cloud subscription service, Amazon Web Services (AWS).

An encouraging sign of opportunities for the retail sector?

Against the general backdrop of a difficult period for many retailers, there are clearly opportunities (and investor support) for those that are able to realise the full potential of innovative technology.

For Ocado, Amazon and others investing to innovate, there are huge opportunities to offer tech solutions to retailers who have previously not needed to look further than their brick and mortar sales channels.

Likewise, the ready-availability of these licensable solutions can help more traditional retailers who might otherwise have been left on the shelf while struggling to keep up with online competitors.

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