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business models, strategies and technologies

The logistics of retailing – the “Internet of vans”

From bricks and mortar to van company to tech powerhouse – the logistics of retailing morph fast

Ocado in the UK is one of the pioneers in online supermarkets. More importantly, it’s a successful one. The company’s 2016 turnover amounted to €1.5 billion, a 14.8 % increase compared to 2015. EBITDA grew 21.8 % to €17 million and its customer base also grew nearly 14 % to 580,000.

The whole supermarket/online supermarket idea has undergone an incredibly rapid metamorphosis – from bricks and mortar retail to large-scale logistics to van company and tech powerhouse.

Ocado Technology develops the software and systems that power the online grocery retail platforms of Ocado.com (which their website claims is the world’s largest online-only grocery retailer – a factoid that may only have limited shelf life with Amazon’s recent forays into the field) and Morrisons (the UK’s fourth-largest supermarket chain).

from the “Ocado’s Internet of Vans” film

BYO – platform not product

The complexity of the systems Ocado needs, and the importance of a critical competitive edge, mean the company simply couldn’t and can’t buy its systems off the shelf. As a result, they claim they build nearly all their technology in-house, from automated warehouses to route optimisers and navigation, and to the retail websites themselves.

Ocado Technology seems to have been good at mastering the art of dovetailing and integrating a build-your-own (BYO) technology mish-mash featuring real-time control systems and robotics, computer vision systems, machine learning and AI, simulation, data science, forecasting and routing systems, inference engines, cloud, IoT, big data and more.

As a result, Ocado Technology has its own order system, which it licenses to other companies. Which puts a different slant on its whole business – and what it really is.

Visible difference

The company takes this remarkable story and delivers it front and centre (well, here). This provides a much greater appreciation of what we ignorant mere mortals mostly just perceive as vans driving around. The story is about the technical “enabler”, and it’s rare to see this highlighted as much as what it enables.

The vehicle vacuum

And then they have to actually deliver the stuff… Logistics platforms and delivery models are coexisting challenges. So it’s a bit of a mind-bender that the one thing we can actually see about Ocado operations – the ubiquitous vans trundling along UK roads – is probably the least-optimised part of the whole operation. The vans may have fancy computers to tell them where to go, but they’re still good, old manned gas-guzzlers.

Ocado is, of course, working on that. In 2017, the company was trialling a self-driving Oxbotica delivery van in London, in which compartments automatically unlock when they reach each stop, to deliver the goods to the recipient

As an indicator of how seriously markets take this “last mile” problem, Just Eat is an online food order and delivery service (of Danish origin) whose share price nosedived 12+% in early March 2018 immediately after it announced that it would spend around GBP 50 million building its own delivery fleet.