Grocery retailer Ocado is not well known outside of the United Kingdom. Even in the U.K., Ocado commands a mere 1.8% market share. But in the 20 years since it launched as one of the country’s first online-only supermarkets, the brand has become synonymous with technology. This is thanks to investments in machine learning, robotics, automated warehouses, and R&D projects to develop robotic arms capable of picking and packing delicate items such as fruit.
The company has gradually transformed into a platform that equips retailers like Kroger with the tech needed to challenge the likes of Amazon, whose expansion into groceries continues. And just as Amazon offers all kinds of goods on its platform, Ocado’s ambitions now stretch far beyond groceries.
Last week, Hatfield, England-based Ocado made its first acquisitions when it snapped up not one but two U.S. robotics companies for a combined total of $287 million. One is Kindred Systems, a San Francisco-based company that builds AI-enabled, piece-picking robots for ecommerce companies. The other is Haddington Dynamics, a Henderson, Nevada-based R&D company developing lightweight, dextrous robotic arms.
Ocado also recently purchased a minority stake in another San Francisco robotics startup called Myrmex, which is building autonomous mobile robots and “intelligent asset handling systems” covering click-and-collect deliveries. As part of that deal, Myrmex will develop a “bespoke product” for Ocado’s warehouses.
Having a U.K.-based company invest so heavily in U.S. startups reverses a stream of M&As flowing in the opposite direction. But as the pandemic has cast a spotlight on online retail — both Amazon and Ocado’s shares have roughly doubled since March — Ocado is now going for the ecommerce jugular.
“If there are two topics that are now at the top of grocery boardroom agendas worldwide, they are COVID-19 and how to build successful online capabilities,” Ocado CEO James Matthews told VentureBeat.
This doesn’t necessarily change Ocado’s mission, but the company is now in a strong position to capitalize on retailers looking to transition to ecommerce.
“As the world moves online to groceries faster, the need for an economically viable solution for retailers is only more important,” Matthews continued. “So while COVID-19 hasn’t necessarily sped up our ambitions — which have always been to push the frontier of smart robotics and automation — it certainly hasn’t slowed them down either.”
From retailer to technology platform
Although Ocado is a blip on the grocery retail radar, its investments in technology and infrastructure have increasingly paid dividends. In 2014, it partnered with Morrison’s as the U.K.’s fourth largest grocery retailer belatedly embraced ecommerce. The following year, Ocado announced the Ocado Smart Platform (OSP), formally opening its entire technology stack — including software systems and physical assets — for international grocery retailers to licence as a fully integrated service.
Since then, Ocado has helped France’s Groupe Casino build robotic warehouses and signed on Sobeys (Canada), ICA (Sweden), and Bon Preu (Spain). Arguably its biggest deal to date came in 2018, when Ocado successfully wooed Kroger, one of the world’s biggest grocery chains (second only to Walmart in the U.S.).
To date, Kroger and Ocado have announced nine locations to house robotics-infused customer fulfillment centers (CFCs) of various sizes. These cover Ohio, Florida, Maryland, Georgia, Texas, Wisconsin, Michigan, and two other sites in the West and Pacific Northwest regions. The first center is scheduled to open early next year in Monroe, Ohio, followed by one in Groveland, Florida.
Once Ocado picks a partner, it won’t work with any competitor in that country, so Kroger has Ocado all to itself in the U.S.
Haddington Dynamics, Ocado’s less-expensive acquisition at $25 million, could help reduce the installation cost of robotic arms across Ocado’s CFC network. But the Kindred acquisition is more notable, as it opens Ocado to sectors far beyond grocery logistics.
Kindred’s high-profile customers include American Eagle and Gap, which recently tripled its fleet of Kindred’s Sort robots to more than 100 across its distribution centers.
The Sort “pick-and-place” robots use what Kindred calls AutoGrasp, an AI platform that combines machine vision and manipulation algorithms to pick and pack the correct items for each customer order. Once a robot is installed on-site, Kindred gives clients access to remote “teleoperation” controls and engineering services to ensure the robots can be managed and monitored from afar.
For Ocado, Kindred serves not only as an acquisition of technology and talent, but also an entry point into the broader retail market. The warehouse robotics market was pegged at around $6.12 billion in 2019, a figure that is expected to hit $25.8 billion by 2025. Moving beyond groceries will likely help Ocado grab a bigger piece of that pie.
According to Matthews, Ocado’s near-term focus will remain largely on groceries, which is what the Ocado Smart Platform was built for, but he sees no reason to limit the company’s horizons.
“The global market for robotic picking solutions is sizable, with scope for substantial growth in the future,” Matthews said. “We see potential across a range of different industries, including logistics, health and beauty, and of course grocery.”
Kindred and Haddington also give Ocado instant access to a wealth of technical talent. Kindred alone has around 90 employees, half of them engineers that now join Ocado’s technology division.
“We believe that these acquisitions will also help to unlock value from Ocado Smart Platform’s existing solutions faster than is currently possible on a standalone basis,” Matthews said. “For example, Kindred Systems brings additional functionality expertise in areas such as supervised autonomy and teleoperations.”
David and Goliath
Ocado could conceivably have tried to expand its own brand in the consumer sphere, but last year it elected to sell half of its U.K. retail business to British retailer Marks & Spencer, which now also benefits from Ocado’s infrastructure domestically.
“In the past, we’ve launched one highly automated warehouse every few years; now we’re working on several simultaneously and have so far committed to delivering around 50 across the world,” Matthews said.
While Amazon was already one of the world’s most valuable companies, COVID-19 has cemented that status, with its market capitalization growing from around $900 billion in mid-March to a peak of around $1.7 trillion in September.
Amazon has also long embraced automation and robotics to streamline its operations, making it difficult for others to compete. This is why a slew of companies have emerged to equip smaller players with the kinds of technologies Amazon enjoys.
French robotics startup Exotec recently raised $90 million to develop its autonomous industrial Skypod robots that can move horizontally and vertically and travel at speeds of up to 9 mph. The robots constitute part of a “goods-to-person” picking system that reduces strain and physical exertion for human warehouse workers.
Exotec already claim some notable customers, including French retail giant Carrefour and European Amazon rival Cdiscount.
Earlier this year, Berkshire Grey secured a hefty $263 million for its AI-infused robotics designed to automate fulfillment for ecommerce retailers.
It’s clear there is an appetite for technologies that help the Davids of the world tackle Goliaths like Amazon — even if those “Davids” are billion-dollar companies like Carrefour and Kroger.
Ocado might not be a household name, but it’s fine with that, providing it continues to secure partners on par with Kroger. And with Kindred and Haddington now under its wing, it’s going all-in to do just that.