Ocado Group PLC's (LON:OCDO) joint venture with Marks and Spencer Group PLC (LON:MKS) is looking to grow by becoming smaller, with a new UK delivery depot less than a quarter of the size of its current online grocery warehouses.
Ocado, which has seen its shares dented by worries that its current clients might prefer the smaller and more efficient depots of US online grocery startup Takeoff Technologies, said Ocado Retail will open its sixth UK ‘customer fulfilment centre’ (CFC) in Bristol with a capacity for 30,000 orders per week.
This ‘mini-CFC’ compares to the 150,000 and 180,000 at its first two CFCs and 80,000 from its in-construction site at Purfleet.
The Bristol mini-CFC is being built in an existing, 150,000 sq ft warehouse owned by St Modwen Properties PLC (LON:SMP) and is expected to be operational at least by early 2021.
“Despite its smaller size, we expect the Bristol mini-CFC to achieve productivity close to that in our standard facilities,” Ocado said.
Mini-CFCs, which can carry a full grocery range, are larger than the ‘micro-CFCs’ that Ocado has employed in its trials of a new Zoom one-hour delivery service in Acton, London from a facility around 5,000-25,000 sq ft with a smaller grocery range.
As per the agreement between M&S and Ocado, the joint venture will undertake the development work of the Bristol site, while replacing the existing fulfilment model in the area is expected to offset most of the additional costs incurred in the supply chain.
"The Ocado Smart Platform is constantly evolving as we innovate to adapt to changing customer needs,” Ocado chief executive Tim Steiner said in a statement.
Smaller is better?
Analysts at Berenberg said earlier this week that they believed Zoom micro fulfilment depots trials since March have "exceeded expectations and we believe it is likely to be offered to food retail partners soon".
Earlier this month, Ocado shares dropped 20% on the back of a report from broker Jefferies that its relationship was “cooling” with US grocery partner Kroger, for which the UK company is helping build 20 high-tech warehouses around the USA to fulfil grocery delivery orders.
Analysts at Jefferies suggested the smaller automated warehouses rolled out by Massachusetts-based Takeoff might be better suited for the US market than Ocado's as they might be better at fulfilling same-day delivery orders.
Other analysts refuted this, saying the sell-off was undeserved as Takeoff's systems are not as sophisticated as Ocado's and the relationship with Kroger remains strong.
Shares in Ocado were up 2% to 1,188.25p by lunchtime on Thursday.