We are solely focused on the online channel, and committed to providing the best customer shopping experience available."
As customer behaviour shifts towards shopping for groceries online, incumbent retailers are trying to adapt their existing businesses to meet this fundamental change. We are solely focused on the online channel, and committed to providing the best customer shopping experience available, without the distraction of legacy bricks and mortar operations. Our objective has been to be a cost leader and create a virtuous cycle between growth, efficiency and investment.
Ultimately the retail mission is to move a product from a supplier to a customer's home. However, traditional retail models only deliver half of this mission, moving a product only as far as the shop shelf. The customer performs the other half of the mission by coming to the store, "picking, packing and delivering" the product themselves. Notwithstanding, grocery retail remains a relatively slim margin business today. By offering online services, the retailer commits to complete the entire retail mission, including that part currently performed by the customer. The extra work entails additional cost for the retailer, and represents the fundamental challenge to the grocery retail industry.
There is no single strategy for online retailing. In grocery, different approaches are being adopted, with traditional supermarket operators largely using existing store based fulfilment. Some have started to build so called "dark stores", stores without customers or in effect small warehouses with limited automated processes, with a turnover similar to a typical supermarket dedicated only to servicing online orders. Both a store pick and a dark store approach incur the costs associated with traditional store retailing, but the incremental cost of picking, packing and delivery drives margins from the online channel down significantly.
By contrast, Ocado has adopted a very different approach with the objective of removing significant costs from the traditional grocery supply chain. We do this through the centralisation of our picking operation from large warehouses, which are over 20 times the size of a big supermarket, which aggregates activities to give each function scale, and through the use of automation and technology. We distribute orders directly from our picking facilities and through a series of local spoke sites located around the country.
"Ocado has adopted a very different approach with the objective of removing significant costs from the traditional grocery supply chain.