Tim Steiner

Ocado CEO Tim Steiner said rapid delivery was not a repsonse to Amazon because ’they haven’t made a big impact in the UK grocery space’

Ocado has announced its entry into rapid grocery delivery with the launch of a one-hour service for orders under £60 from next month.

Called Ocado Zoom, the service will be launched from a West London test site, using third-party courier services to dispatch orders in a three-mile radius in under 60 minutes.

Speaking at an analysts’ presentation following the online supermarket’s full-year results statement this morning, Ocado CEO Tim Steiner said 10,000 products would be available. “So, a range more equivalent to an actual Tesco or Sainsbury’s supermarket, not the 1,500 lines you’d find in one of their convenience stores,” he said.

Ocado Zoom would be competitively priced with low delivery costs, Steiner said. “We’re able to do this because it is a unique model with micro-automated centralised fulfilment, being fed itself from our large-scale automated central fulfilment.”

It would allow Ocado to “tap into a part of the market that we’ve not addressed before, and that is the sub-£60 basket market, which is over 50% of the UK grocery market today”.

Speaking earlier in a media call, Steiner said the move was not a response to any threat from Amazon because “they haven’t made a big impact in the UK grocery space”. He said it was instead “just to address what we see as potential customer demand”.

Responding to numerous questions from journalists over reports of a possible tie-up with M&S, he repeatedly refused to comment.

As rumours swirl about Ocado and M&S, what kind of deal is most likely?

But he clarified that Ocado’s existing deal with Waitrose, which comes up for renewal in September next year, included restrictions that would prevent it selling M&S own-label products in the UK. 

“Under the current arrangements that we have with Waitrose, we wouldn’t be able to add the own-label products of another substantial UK grocery retailer into the current Ocado offering while we’re selling the Waitrose products,” he said, adding: “It would eliminate M&S.”

On the prospects of the Waitrose deal being renewed, he said: “In September 2020, we’ll still be in business, we’ll still be selling 50,000-plus lines to our customers, including high-quality own-label products. They may be Waitrose, they may not be Waitrose. We’ll have to wait and see.” 

Steiner also revealed Ocado was stockpiling mechanical parts used in its distribution centres in preparation for Brexit, while adding that “in the main course of our business, there’s nothing we can do. You can’t stockpile fresh produce.”

He said: “We hope they don’t, but if any of the routes into the UK from Europe grind to a halt due to checking on the European side, that will obviously have an impact on every food retailer. 

“We hold about seven days’ of inventory by sales velocity, and we don’t have space to store six months’ on inventory, nor can we because our fresh food has to be turned immediately. We can’t immunise ourselves in a way that a general merchandise retailer of long-life valuable, small products can.”

He added: “We have exposure and we’ve taken various steps internally to try to minimise that exposure. There are some areas where we can stockpile, like critical spares in the warehouse for example. We can ensure that have a larger supply than we normally would, we’re not reliant on just-in-time deliveries from Europe.”

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On stockpiling of mechanical parts, he said: “If there is an issue and things like food are prioritised and not mechanical parts, we wouldn’t want to be in a situation where we can buy food but we can’t run a conveyor because we’re missing a component that we’d normally expect to be able to receive in a 24-hour turnaround.”

The online supermarket grew its annual revenues by 12.3% in 2018, but its pre-tax losses jumped from £9.8m to £44.4m as the cost of its investment in growth hit profits.

Total revenues were up 12.3% to £1.6bn as its core retail business continued to grow.

Retail sales of £1.48bn were driven by a 12.0% year-on-year increase in orders per week to 296,000, while active customers increased by 11.8% from 645,000 to 721,000.

Steiner said Ocado expected to announce the location of its fifth UK CFC in the first half of this year. 

The trading statement said robotic picking would progress from testing to ‘live production’ at the Andover customer fulfilment centre ‘over the coming months’.