Within our 2018 Predictions for Industry and Global Supply Chains (available for complementary downloading in our Supply Chain Matters Research Center), we included a prediction that called for continuous developments and announcements in the B2B and B2C logistics and transportation sector. The motivation is the ongoing explosion in online buying, the various industry-specific impacts, and the strategic need for providers to be able to competitively scale capabilities in such areas. We indicated announcements would include new strategic alliances, mergers, added acquisitions and some fallout. Some of these announcements could be significant and far reaching like Amazon’s prior strategic move to institute expanded global transportation and customer fulfillment logistics capabilities.
In the former category of alliances, yesterday’s business headlines included the announcement by U.S. based grocery chain Kroger indicating that the food retailer has upped its equity stake in United Kingdom based grocery robotics retailer Ocado Group.
Kroger is investing approximately $247 million, equating to a 6 percent stake in the U.K. firm. In return, Kroger will license Ocado’s unique robotics-based automated warehouse technology to process online orders. According to reports, three new warehouses will be targeted for online customer fulfillment automation this year, growing to a total of 20 warehouses over the next three years.
Ocado’s capabilities are described as software and systems that power the online grocery retail platforms of Ocado.com, noted as the globe’s largest online-only grocery retailer, and Morrisons, the UK’s fourth largest supermarket chain. The combination online retail and technology development firm also develop automated systems for several general merchandising online retail businesses, including Fabled by Marie Claire, Fetch, and Sizzle. Over the coming months, Kroger will now be added. According to the company’s web site, the firm’s technology capabilities are broad and deep, covering real-time control systems and robotics, computer vision systems, machine learning and AI, simulation, data science, forecasting and routing systems, inference engines, cloud, IoT, big data and more. That is a wide swath.
What makes this strategic move even interesting is that according to The Wall Street Journal, Kroger’s deal with the U.K. company is exclusive across the U.S., which could limit access by other grocery chain competitors.
While Kroger management indicates this heightened relationship had nothing to do with Amazon’s recent $13 billion acquisition of natural foods food chain Whole Foods, there is obvious industry competitiveness at-stake.
Supply Chain Matters views this week’s Kroger announcement as being in the context of responding to the need for the ability to effectively compete for the future of online grocery and food retailing in a more cost-sensitive manner. Advanced automation is a means to avoid less-efficient manual pick-and-pack tasks within local physical stores. As we have noted in prior commentaries, we fully expect that Amazon will leverage its logistics and warehouse automation capabilities to support Whole Foods presence as the back-end face of Amazon Fresh.
This latest industry announcement follows the December 2017 announcement by U.S. based general merchandise and food retailer Target that it would acquire grocery delivery start-up Shipt, a direct competitor to Instacart, for $550 million. Plans called for Shipt to operate as a business subsidiary, and maintain partnerships with existing grocery retailers, an implication that Target sought to both utilize and grow the online delivery platform. At the time of this announcement, published reports had indicated that both Target and Kroger were in talks to both utilize Shipt as a means to compete with industry rivals on online order speed. Kroger has now elected a different strategy.
Our 2018 prediction further indicated that we would not at all be surprised that integrated online and in-store retailer Walmart would make further partner announcements for shared logistics services for customers or expand its own premium logistics fulfillment capabilities for online customers. While Walmart recently elected to invest $16 billion in India’s Flipkart, continued moves among U.S. competitors may force that retailer into added moves.
The food and grocery industry will therefore need to remain watchful as well as diligent as market forces shake-out efforts toward achieving domestic and global scale in supporting needs for more specialized and cost-effective online logistics and customer fulfillment. More industry developments are sure to-come.
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