Posts Tagged ‘ocado’

Remember when supermarkets started doing online deliveries? And it turned out that they just had people going around their own stores picking out items to send to people?

Oh, how we laughed. “What a silly way to do it” we jeered. “Why don’t they have one central warehouse where they can do everything efficiently?”

I don’t think supermarkets did it this way because they thought it was the best way. I think they did it because of path dependency: they already all of these stores and it was the easiest way to do it. However, here we are a decade later, and it turns out that their approach is the best.

In fairness, I’m being overly provocative with my headline. I’m a fan of Ocado. You can read my review of Ocado here. But my guess is that if they want to build on their success in the long-term, they have some fundamental business challenges to overcome.

This is why…

Why is Amazon looking for retail space?

The story starts as many do, with some fascinating insight from Scott Galloway. He said that Amazon would eventually buy a large department store.

Why? Because such a company would have stores in every major city. This is important because it allows Amazon to deliver products quicker. One of their big problems is time: I can drive to the shop and buy something instantly. And customers love instant gratification. Amazon cannot deliver that, which is why they are spending time messing around with drones.

Jeff Bezos has always wanted to find a better way to do this. In Bezos’s biography, The Everything Store, Brad Stone talks about how Bezos wanted to hire college kids to keep a stock of Amazon products in their bedrooms and cycle them round to customers the minute they ordered.

Short of that, Amazon needs a distribution facility in each area to allow them to get products to customers quickly. That is tough when you operate a huge monolithic centre. But way easier when you have loads of local stores.

What does this mean for Ocado?

Ocado has the same problem that Amazon does. They operate out of a giant warehouse down south. This means that you have to pick the orders there and drive them to every corner of the country. Doing this is expensive for Ocado and slow for consumers.

Compare that to the major supermarkets: Sainsbury’s have their warehouse located literally only a few miles from my house. And everybody’s house. And running this warehouse costs them practically nothing because the stores are profitable in themselves.

Therefore, even when you add the cost of an inefficient system in which employees go around the shop picking out items like an in-store customer would, it still produces a business model that works and works well.

What can they do about?

Ocado needs to find other ways to compete. Amazon was successful in competing against existing high street stores. It did this in two ways. 1) it offered cheaper prices and 2) it offered a way bigger selection. Their tagline is, after all, “Earth’s biggest selection”.

Ocado doesn’t do this. Their prices are more expensive. Their selection is good, but not amazing. Take fish, for example. The selection at most supermarkets is rubbish: cod, salmon, seabass, maybe some tuna or another white fish if you are lucky. Morrison’s is a bit better. Ocado better still: their selection is maybe twice as big.

But, as Peter Thiel points out in Zero to One, if you want to do the same thing as everyone else, you can’t be 2x better: you need to be 10x better. Leeds Fish Market is 10x better. I can get maybe 100 different specifies of fish and seafood there. So I go. Just like Amazon offered way more books than my bookstore.

Summary

Traditional supermarkets have a huge advantage over online ones because they have a far better distribution network. This is important because that is all a supermarket essentially is: they buy other people’s food and distribute it to people before it goes off. If the online world wants to compete, it needs to offer an experience that is so much better you cannot possibly not switch. Ocado and Amazon Fresh do not yet do that, in my opinion.

Ocado always seemed like a mythical super-supermarket. A land of plenty that stocked everything you could imagine and more besides. So, we gave it a go. Here is what we thought.

We usually order from Sainsbury’s. They are not without their problems. I’ve also tried Morrison’s online delivery, so those are my basis for comparison.

Ordering

Their website is a mixed bag. It’s crowded: the interface is crammed with buttons and promotions. However, the ordering functionality itself is fine. I like the quick view pop-up and being able to hover over a product to zoom in. They often have a lot of product photos, too.

While they have an extensive range, a lot of stuff is sold out. I like the fact that they are honest about this. I’m not sure what Sainsbury’s do, but based on past experience (one time loose tomatoes disappeared, for example) I think they silently remove stuff. Still, being so close to red delicious apples and missing out was frustrating.

Your delivery slot is only reserved for one hour. This is fine if you sit down knowing what you want. However, it was a bit of a rush when you are recipe planning at the same time. I had to place the order and go back and edit it later.

My biggest gripe with the ordering process is that I could only edit it until 5:40 pm the day before. Morrisons also have a cut off of 5 pm, whereas Sainsbury’s is 11 pm. This is probably the biggest reason we are still with Sainsbury’s.

It might not seem like a big deal, but it is to me. I work late, so 5:40 pm means I have to finish the order on Thursday evening, which is a whole day lost. I am regularly on the Sainsbury’s website at 10:45 pm on a Friday night, tweaking my order to accommodate new recipes I want to try or taking food out because I’ve been invited out to dinner one night.

Yeah, that is how I spend my Friday nights. Fuck you and your rock and roll lifestyle.

Product range

This is where I was expecting Ocado to excel. But, honestly, I was a little disappointed.

Sure, they had veal, and goat, and cloudberry jam. That is awesome. But we had been keeping a list of all the things we couldn’t get at Sainsbury’s and when it came down to it, that list was not that long.

On the flip side, they have stuff missing, too. No longley farm yoghurts, no smarties, no strawberry old moot cider. They have a better range of speciality mushrooms, but only to the extent that I could get them in larger quantities. No chanterelles.

They do have all of the Schwartz spices that Sainsbury’s have decided not to stock anymore. However, they do not have all of the own-brand stuff that drives down the cost of your shop. They have Waitrose Essentials, but it’s Waitrose, so it often the same price to get the branded stuff.

Fresh produce is a problem, too. They’re not a supermarket; they’re a warehouse. So you can’t buy a red pepper or a single apple. You have to buy a bag of them. This is probably okay if you are a cook who just opens the fridge and decides to make something based on what is in there. But I’m not there yet. I have plans. And those plans get expensive when you have to buy a bag of carrots just to get one.

Delivery

We usually get our shopping delivered in the 10 am – 11 am slot on Saturday morning. This has never been a problem. However, Ocado had no availability between 8 am and 11 am, so we had to push it back to the 11 am – noon slot.

Taking a look now, if I book a week in advance, I can get almost any time I choose for next Saturday. They have a system where you can reserve a time slot on a weekly basis, so if we went with them full time, I should be able to sort this.

The delivery was on time.

They have the best receipt I have seen. Everything comes in order of date, so you can easily tell when things are use by. This is great: I can easily compare if anything is going out of date before my meal plan schedules them in. With Sainsbury’s, you have to do this manually.

The bags are colour coded for freezer, fridge and cupboard. Morisson’s do this, too.

There is a substitution on my order. Not a great start for somewhere to claims to have very few of them. Worse, although they email me to tell me about it in advance, the guy never asks me if I want to return the substitution. I did want to return it. But, as they’re not separated into separate bags, I never got the chance to say anything.

Product quality

One of our big issues with Sainsbury’s is the expiry date of bagels. When we buy them from the Co-op, they last four weeks. When we buy them from Sainsbury’s, they expire in about five days. We were hoping Ocado would product Co-op results, but they do expire in five days.

Cost

It was an expensive shop. We sent £120. We got £20 off this off for being a new customer, but that is still a lot of cash.

It’s true that some of that cost was because we saw we could finally get veal loin and rack of lamb, and did so. However, I have put my regular order into mySupermarket for price comparison several times and Ocado regularly comes out more expensive. See this comparission from 2015.

There are a number of reasons for this. Having to buy branded products rather than own-brand. Having to buy multipack vegetables rather than individual ones. But Ocado is also just more expensive. Take Pampers nappies, for example. Our current pack is £7 from Sainsbury’s, but £8 from Ocado.

£10 extra per week is a pretty big deal: that’s £500 extra per year.

There is also the cost of delivery. I am not sure what the cost of individual deliveries are but the Smart Pass (free deliveries) costs £110 per year. It’s £60 for one at both Sainsbury’s and Morrison’s.

Conclusion

Ocado has a lot going for them. However, I don’t think we will be switching anytime soon. The biggest issues, for me, are that I cannot edit my order after 5:40 pm and the cost (which I think is a result of the lack of individual fresh produce, higher prices and smaller range of won-brand items).