Ocado makes another e-retail logistics deal

Ocado’s e-commerce logistics platform is going from strength to strength. The company has just announced a new contract to provide an e-commerce logistics platform for the Swedish ICA Group (ICA Gruppen).

The deal generally conforms to the usual Ocado pattern with ICA buying “front-end web site functionality, supported by Ocado’s proprietary ‘web shop’ and mobile grocery ordering applications; construction of Ocado’s latest generation, state-of-the-art automated warehouse designed specifically for grocery e-commerce (in which Ocado will invest to install internal infrastructure and robots); and last-mile routing management technology”. As with the other deals Ocado will have to provide the capital to build the warehouse although no details about the price have been disclosed.

It is worth noting that exclusive access for ICA Group to Ocado’s technology in Scandinavia is only is only guaranteed if the retailer hits agreed but undisclosed sales growth targets.

ICA Group is, according to Ocado “the leading grocery retailer in Sweden with around 1,300 stores across the country and a market share of around 36%, generating sales of SEK 106.5bn in 2017”. It remains the largest grocery retailer in Scandinavia with a mix of local and ‘big -box’ stores.

ICA Group has a characteristically Scandinavian approach to management. Until a few years ago the company was a type of co-operative, composed of a string of small retailers who owned the company and operated on what might described as a franchise system. The need for capital ended this, with Dutch retailer Ahold buying into ICA. However, it retains a high degree of decentralisation. It might be interesting to speculate on whether this deal will change this although Ocado comment that they are “adapting our model to suit the needs of a different business model, based on retailer-owned stores…..The model will enable the independent retailers to continue to compete, which has been instrumental in making ICA one of the most successful grocery retailers in the world, while delivering the benefits of scale of Ocado’s centralised fulfilment model”

The first fulfilment centre will be built in Stockholm and is expected to open in 2020.

This latest deal for Ocado is the third in less than a year and represents success in another wealthy, sophisticated, medium sized market, although admittedly the Groupe Casino deal in France was quite substantial. Ocado needs to keep landing these deals to justify its long-term existence but the speed of the flow of deals augurs well for the company’s ability to grab a large part of the global e-retail logistics market.

Source Transport Intelligence, May 3, 2018

Author: Thomas Cullen


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