News Pricer.lt

How big a threat is Tesco’s new online grocery initiative to Ocado?

How big a threat is Tesco’s new online grocery initiative to Ocado?

Tesco unveiled plans to launch a new ecommerce initiative last week, as it seeks to help international supermarket chains develop their online operations, in a similar move to fellow UK grocer Ocado.

Tesco’s Transcend Retail Solutions, which was set up last year, provides software and hardware to international supermarkets to allow them to fulfil online orders directly from their stores.

It has inked its first partnership with New Zealand’s grocery retailer, Foodstuffs North Island, and is in discussions with other retailers to strike similar agreements.

How big an opportunity is Tesco’s tech initiative and how much of a threat is it to Ocado?

What is Tesco ecommerce solution?

Transcend Retail Solutions provides store picking technology to overseas grocers to allow them to carry out online orders from their stores, with the venture’s CEO insisting the business believes it has “something to offer the market”.

New Zealand grocer Foodstuffs will use Tesco’s cloud-based picking software to take online orders and map out the most efficient route for pickers around its shops through handheld devices, according to The Sunday Times.

Ocado, which has shifted from an online grocery business to an international technology provider in recent years, works by bringing retailers onto its Ocado Smart Platform, an end-to-end ecommerce, fulfilment and logistics solution that uses artificial intelligence (AI), robotics and automation.

It has partnered with a raft of global businesses and has built automated warehouses for them around the world, recently opening two fulfilment centres in Australia as part of its 2019 deal with Coles.

Former Sainsbury’s, John Lewis and House of Fraser CIO Julian Burnett says Tesco’s initiative is set to “compete head on with Ocado’s Smart Platform”.

However, he says the major difference lies in the fulfilment model each favours, and that while Ocado has focussed on “developing large-scale dark store warehouse automation capabilities, developing its own robotics technologies to achieve this,” Transcend is focussed on “automating the store pick model of grocery fulfilment”. 

Former Sainsbury’s group CIO Phil Jordan adds: “On the face of it, they provide the same customer outcomes. 

“However, Ocado’s solution set was designed more recently and as a far more automated solution which historically benefited in productivity and efficiency terms.”

Yet another venture for Tesco

The ecommerce initiative is not the only new ventures Tesco has embarked upon of late, after it launched its new marketplace in June.

So why is the retail giant pushing ahead with another project?

Retail Technology publisher and consultant Miya Knights explains that retailers are under pressure to “diversify their businesses and innovate to grow their strategic business models”.

“Targeting customer audiences through retail media networks is one current example of how they are responding to this pressure.”

She continues: “Reselling core operational capabilities, such as picking ecommerce orders in-store to other retailers looking for greater efficiencies, is another way of monetising its technology-based hardware and software development and investment as another revenue stream.”

Jordan also points out: “Retailers like Tesco have huge scale and revenues. 

“However, they remain pretty low margin, so anything they can do to ’sweat their assets’ to create incremental growth by reselling their technology or indeed pushing more product through their channels is clearly accretive.”

TescoIn terms of the opportunity Transcend presents for Tesco, Burnett points out that the global grocery delivery market is set to hit record revenues of £585.46bn ($770bn) annually by the end of this year.

“Capturing even a small share of the technology spend associated with this growing market represents a very significant market opportunity for Tesco,” he says.

Jordan adds: “Transcend clearly presents a material enough opportunity and you can see why smaller international retailers might trust a major retail brand. 

“The real key for Tesco will be to prove that they can trade groceries intensively in the most competitive market in the world and resell their technology at the same time.”

‘The potential to fly off shelves’

Despite Ocado’s presence, Burnett claims there is still a “very big gap in the market” for Tesco’s Transcend, “particularly in those markets that are less mature than the UK where grocery ecommerce was pioneered by Tesco, Sainsbury’s and Ocado”.

He adds: “Accessing the advanced technology and expertise offered by Transcend Retail Solutions is likely to be very attractive to grocery retailers operating in those markets.”

Burnett believes it is “highly likely” Tesco will see “additional incremental revenue and margin contribution” from the venture, due to the “very significant global market opportunity” in grocery ecommerce fulfilment.

He elaborates: “With a proven solution offered alongside Tesco’s own operational expertise to aid implementation, the risk profile for a grocery retailer choosing to adopt Transcend’s solution is quite low. 

“If Transcend gets its pricing right this new venture has the potential to fly off the shelves.”

Should Ocado be worried?

With a new online grocery service on the block, how worried should Ocado be about Tesco’s plans?

Burnett assures that Ocado and Transcend offer “a different approach to solving the same problem”.

“For grocery retailers focused on ‘store pick’, Transcend is likely to be a big threat to Ocado, which offers a dark store-centric solution. 

“The choice between these two operating models is not clear cut and very much driven by a wide range of geographical, physical, operational and technology related factors which are unique for every retailer.”

He explains that for some retailers, Transcend will “make sense,” while for others, Ocado’s Smart Platform will be a “closer fit”. 

“Either way, Ocado now has a major competitor entering the market with a very credible, proven solution and very deep pockets to continue investment in their product and their go-to-market activities,” he adds.

OcadoShore Capital vice chair Clive Black notes: “It could certainly make the market think about alternative online grocery fulfilment models, which in time could be another challenge for Ocado.”

However, he flags will be “a long time, if ever, that Tesco is taking Ocado’s customers”.

Jordan adds: “I don’t think it will be battle for platform capability that is the success factor but rather Tesco being able to successfully pivot to becoming a technology provider as well as a grocer.”

However, if Tesco can pivot, it gives Ocado reason to watch its back.

Click here to sign up to Retail Gazette‘s free daily email newsletter

News source

Dalintis:
0 0 balsai
Straipsnio vertinimas
guest
0 Komentarai
Seniausi
Naujausi Daugiausiai įvertinti
Inline Feedbacks
Rodyti visus komentarus

Taip pat skaitykite: