Ocado in the Context of Global Business

1500 words (6 pages) Business Assignment

2nd Jun 2020 Business Assignment Reference this

Tags: Business AssignmentsBusinessInternational BusinessOcado

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Ocado is the world’s largest dedicated online grocery supermarket, with over 580,000 active customers. Despite only having 1.4% of the grocery market share (£190bn as of 2018) their market capitalization as of October 2019 is approximately £9bn mostly driven by their technological innovations (Londonstockexchange.com. 2019). Ocado solutions, have developed their ‘Ocado smart platform’ (OSP), launched in 2015, for completely automated grocery picking from its warehouses. Having to import fresh produce from the EU and conducting business with their Ocado solutions division; two major factors affecting them are the rise in innovation, and the potential difficulties following the 2016 United Kingdom European Union membership referendum.

Innovation – Innovation has been a huge factor for Ocado in terms of the growth of the company. Being at the forefront of fully automated warehouses in the UK its innovative Ocado Smart Platform (OSP) has proved desirable to foreign companies looking to compete in the ever-growing online grocery market. In the UK alone, online food and grocery sales are predicted to show a 58% increase by 2022(£10.4bn to £16.0bn) compared with 2017 (Statista 2017). The advancements in technology in the global economy has allowed space for the Ocado platform, an end-to-end software and technology systems with their physical fulfilment solution, to be a desirable commodity for business looking to venture in E-commerce. Deals have been struck for the Ocado smart platform with French Casino Group, Canada’s second largest supermarket chain Sobeys, and USA’s second largest retail chain Kroger; these deals represented huge increases in share value for Ocado, 22%, 12%, and 44% respectively (Vandevelde, M. 2017, Financial Post 2018, BBC News 2018). The partnership with Kroger is hoping to “capture share in the nascent U.S online grocery market, much as Ocado did in Great Britain in the early 2000s”(SPGlobal 2018) and allow Kroger to compete in this market, especially after Amazon announced a $13.7bn merger with wholefoods in June 2017. As of the end of 2018 OSP will power the online grocery business of Morrisons, Bon Preu, Groupe Casino, Sobeys, ICA, and Kroger.

The group is also looking to expand into other markets outside its automated Customer Fulfilment Centres and OSP sales. Ocado have recently (June 2019) invested £17m towards the acquisition of a 58% stake of Jones Food co. the largest vertical farm in Europe. Vertical farming involves producing food indoors, with crops grown on a series of stacked levels in a controlled environment. The global vertical farming market is projected to be worth $6.4bn by 2023, a $4.9bn increase from the 2016 value.(Statista 2013) The expertise Ocado currently have with their proprietary software and their automated systems has resulted in this market presenting a potentially efficient way of growing and harvesting fresh produce all year round. This investment links into the Company’s corporate social responsibility as Tim Steiner, CEO of Ocado, hopes that these vertical farms can potentially be located near to their distribution centres (Davey, J 2019) thus reducing the company’s carbon emissions of produce transportation, particularly from other countries. This investment in vertical farms in the UK also provides capacity for Ocado to grow their produce domestically amid Brexit uncertainty and the potential EU trade issues.

Brexit – Since the EU referendum on June 23rd, 2016 there has been growing uncertainty about what Brexit will mean for business. Ocado, in their 2018 Annual report have identified 3 key areas that will be impacted by leaving the EU; these areas are employees, supply chain and technology. (OCADO GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEKS ENDED 2 DECEMBER 2018, n.d.)

The expansion of the EU in 2004 where 10 new member states, including many from the Eastern Bloc, allowed freedom of movement for workers from these countries. During Ocado’s early period of growth in the mid-2000s, intensive recruitment of these cheaper labour, foreign nationals was necessary to cater for their expansion plans; of the 2000 employees at the Ocado distribution centre in Hatfield 40% of them are from Poland, with an additional 25% from other countries outside the UK (2013 figures). (Warrell H 2013) The implementation of the result of the Brexit referendum may result in many workers from the EU being deported if they do not apply for Right to remain with the EU settlement scheme before December 31st 2020 if UK leaves with ‘No deal, or July 31st if they leave with a deal.

Brexit will have major impact on imports from the European Union, with an ever-increasing likelihood of increased trade barriers and tariffs. Currently UK imports from the EU are £345bn, 54% of all UK imports. (Ward, 2018) Imported fruit, vegetables, etc. account for 9% of all UK trade as of 2018, with 77% of that being trade with EU-27 countries. This figure is likely to fall drastically with supply chains being affected by the UK-EU trade issues. This will increase the cost of importing the produce from abroad and ultimately the sale price of the goods.

Currently Ocado solutions are working with its international partners to design and develop systems and equipment. There is currently an EU standard regarding technology which the Ocado Smart Platform and their other technology currently meets (OCADO GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEKS ENDED 2 DECEMBER 2018, n.d.). However, with the departure from the EU, standardisations may differ, and the certification may no longer be recognised and design processes and technology may need adaptation to comply with the new foreign legislation.

Being a business which conducts trade across the globe, and one that seeks international presence, Ocado must be adaptable to the changing trends at domestic and international levels. The change in the global economic environment presents many barriers for modern business yet early identification is key to negotiating solutions. The advancements in technology and their significance to modern business has allowed Ocado to expand into new foreign markets with business who can utilise its expertise and established systems. Brexit will cause issues for companies with European supply chains and foreign work forces. Ocado is likely to shift part of their operations to continental Europe to combat the issues arising from the referendum.

  • Davey, J. (2019). Ocado sows $22 million “vertical farming” seed to diversify. [online] U.K. Available at: https://uk.reuters.com/article/us-ocado-farming/ocado-sows-22-million-vertical-farming-seed-to-diversify-idUKKCN1TB0UU [Accessed 14 Oct. 2019].
  • Financial Post (2018). Sobeys to expand online grocery business by tying up with Britain’s ecommerce giant Ocado. [online] Financial Post. Available at: https://business.financialpost.com/news/retail-marketing/update-2-ocado-to-tap-into-canadas-online-grocery-market-with-sobeys-tie-up [Accessed 14 Oct. 2019].
  • Londonstockexchange.com. (2019). OCADO share price (OCDO) – London Stock Exchange. [online] Available at: https://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary/GB00B3MBS747GBGBXSET1.html.
  • Ocado shares rise 44% on news of Kroger tech deal. (2018). BBC News. [online] 17 May. Available at: https://www.bbc.co.uk/news/business-44151028 [Accessed 14 Oct. 2019].
  • OCADO GROUP PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEKS ENDED 2 DECEMBER 2018. (n.d.). [online] Available at: http://results18.ocadogroup.com/media/233557/ocado-ar2018-web-ready.pdf [Accessed 14 Oct. 2019].
  • Spglobal.com. (2018). UK grocery delivery company Ocado seen facing challenges in the US market. [online] Available at: https://www.spglobal.com/marketintelligence/en/news-insights/trending/qxam2dfhaewhcamdtesaxq2 [Accessed 14 Oct. 2019].
  • Statista. (2017). Food and grocery growth forecast  | Statista. [online] Available at: https://www.statista.com/statistics/777710/uk-food-grocery-market-growth/ [Accessed 14 Oct. 2019].
  • Statista. (2013). Forecast for vertical farming market global 2022  | Statista. [online] Available at: https://www.statista.com/statistics/487666/projection-vertical-farming-market-worldwide/ [Accessed 14 Oct. 2019].
  • Vandevelde, M. (2017). Ocado unveils tie-up with France’s Groupe Casino. [online] Financial Times. Available at: https://www.ft.com/content/036750de-d40d-11e7-a303-9060cb1e5f44 [Accessed 14 Oct. 2019].
  • Ward, M. (2018). Statistics on UK-EU trade. [online] Parliament.uk. Available at: https://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-7851.
  • Warrell, H. (2013). European staff help Ocado grow. [online] Financial Times. Available at: https://www.ft.com/content/56e9a2e8-8bf1-11e2-b001-00144feabdc0 [Accessed 14 Oct. 2019].

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