Ocado, AutoStore and Kroger: What’s Next? — Brittain Ladd

On October 1st, 2020, the British online retailer, Ocado, was sued by the Norwegian-based robotics company, AutoStore. AutoStore contends that its storage system and robots are the foundation on which the “Ocado Smart Platform” (OSP) technology was built and on which Ocado’s business today is based, and seeks financial damages. For the record, based on my experience and knowledge of Ocado’s platform and AutoStore’s technology, I support AutoStore’s suit against Ocado.

When news of the patent infringement case broke, I posted several articles on LinkedIn along with a recommendation that Ocado could resolve the case by doing any of the following:

1. Pay AutoStore a lump sum and agree to an annual licensing fee for utilizing their technology.
2. Acquire AutoStore.

I would choose option 2 if I ran Ocado. A combined Ocado/AutoStore would offer tremendous value to the customers of both companies and future customers.

The Lawsuit

Pressure has increased on Ocado after the U.S. International Trade Commission said on November 2nd that it would open an investigation into allegations that Ocado’s Smart Platform (OSP) infringed patents held by AutoStore. AutoStore has asked the ITC to prevent Ocado from importing British-made robots and other components central to its system into the U.S.

The last thing Ocado wants to happen is have their ability to ship their robots and other technology to the U.S. be suspended as doing so will halt the rollout of Ocado’s platform at Kroger. Kroger is Ocado’s biggest customer. (Full disclosure: I wrote an article in 2017 recommending that Kroger and Ocado partner. In addition, Kroger hired me as a consultant in 2017 and I pushed Kroger to enter into an agreement with Ocado). Kroger and Ocado agreed in 2018 that Ocado will build 20 automated Customer Fulfillment Centers (CFC) for Kroger across the U.S. The first is due to open in Ohio early next year, with two more to follow later in 2021.

Note: I think very highly of Ocado and I have tremendous respect for the company. However, Ocado should not be able to ship their robots and technology to any customer location globally until the lawsuit is settled. Ocado has a strategic and financial imperative to settle this matter as quickly as possible as there is too much reputational risk to the company if the lawsuit drags on.

In a submission ahead of the ITC’s decision, lawyers for Ocado said the Covid-19 pandemic “will almost certainly still be an issue in the US” in this timeframe — even though fulfilment centers typically take at least several months to reach capacity. “With many Americans only leaving their homes for essential items, buying groceries has become more difficult,” they continued, adding that the company’s technology “can help to address the massive increase in [online] demand”.

I was amused when reading the comments from Ocado’s lawyers as everything they stated is either hyperbole or false. For example, Ocado’s lawyers argue that an investigation “could be deleterious to public health, safety and welfare in the US” during the pandemic. The Ocado Smart Platform, an integrated system of hardware and software, uses robots to pick grocery orders from within automated fulfilment centers far quicker than humans can pick them.

Ocado’s lawyers also argued that online grocery delivery could help alleviate so-called “food deserts”, where access to healthy food was limited. It pointed out that Kroger planned to open fulfilment centers in such areas and accepted federal assistance benefits against food purchases online. “Excluding the OSP from the US market . . . will harm the ability of US consumers, especially consumers in underserved communities, to obtain healthy and affordable food and also will harm Kroger’s ability to compete with established online grocers,” lawyers said.

If Ocado’s legal team is truly concerned about the public health of Americans, Ocado should accelerate discussions with AutoStore and bring the matter to a close. In addition, Ocado can inform Kroger that to prevent American’s from going hungry, Kroger should enter into an agreement with AutoStore to open automated dark stores for large scale online grocery fulfillment in food deserts and other locations. AutoStore can also install micro-fulfillment centers inside select Kroger stores to automate online order fulfillment and meet increased customer demand.

I’m sure Ocado’s CEO, Tim Steiner, won’t put business before the hungry bellies of American men, women and children. Ahem.

I must also point out that Kroger has a level of responsibility to ensure that they do not maintain a business relationship with any company accused of patent infringement. Kroger has options other than Ocado to meet their needs for automated grocery fulfillment. Kroger can and should pressure Ocado to bring this matter to a close as soon as possible.

Based on what I’ve stated, the International Trade Commission should not hesitate to rule against Ocado and prevent them from shipping their robots and other technology to the U.S.

Options for AutoStore

As I stated earlier, I support AutoStore’s lawsuit against Ocado. However, I believe AutoStore must take a hard look at their current business model and answer these question:

1. Do we have a coherent, capabilities-driven strategy?
2. Do our products and portfolio give us the right to win?
3. Are we as aggressive as we should be on R&D? Are we aggressively questioning the status quo?
4. Are we influencing or reacting?
5. Do we have the right partnerships to maximize value to our customers and create a competitive advantage?
6. Do we lead or do we compete?

I believe AutoStore has done an excellent job in most areas of its business. However, opportunities exist for AutoStore to more clearly define their differentiating capabilities and how those capabilities give it the right to win. For example, several of AutoStore’s competitors started a rumor that AutoStore can’t fulfill online grocery orders. The rumor is 100% false yet it still persists. AutoStore would be wise to create a video that outlines how its technology not only can be leveraged to fulfill online orders, but that the technology fulfills online grocery orders better than any other micro-fulfillment technology on the market.

HEB recently selected AutoStore to meet its micro-fulfillment needs. I estimate that several nationwide grocery retailers will soon announce a partnership with AutoStore. Nonetheless, AutoStore must ensure that they never lose a customer due to a lie from a salesman.

When it comes to corporate strategy, I strongly recommend that AutoStore emulate Ocado’s strategy by creating their own AutoStore Smart Platform (ASM). In essence, AutoStore should become another Ocado. I believe the first move AutoStore should make is to acquire Takeoff Technologies. I believe Takeoff’s platform is ideal for AutoStore.

In addition, I advise AutoStore to create a separate division within the company to focus on Fulfillment as a Service (FaaS) and Micro-fulfillment as a Service (MaaS). FaaS and MaaS will allow AutoStore to customize facilities to meet the demands of grocery retailers for large automated fulfillment centers and smaller, surgical locations for micro-fulfillment.

I also want to reinforce to AutoStore that FaaS and MaaS can be utilized to meet the needs of specialty retailers, department stores, Big Box, warehouse clubs, convenience stores, and food delivery companies wanting to expand into fulfillment and delivery of groceries and convenience items.

I caution AutoStore not to win the battle against Ocado only to lose the war.

The time has come to ‘Think BIG’, AutoStore. Do not let this opportunity pass you by.

Originally published at https://brittainladd.com on November 7, 2020.