The grocer was riding high on a US deal for its robotised logistics system. Then came a fire at its state-of-the-art depot
Last Tuesday morning Tim Steiner, the boss of Ocado, was brimming with his usual confidence as he told City investors how its robotic warehouses had the potential to revolutionise grocery shopping and transform the way baggage carousels, car parks and even ports operate.
However, as Steiner was delivering his presentation in Goldman Sachs’s London office – where he worked as a bond trader in the 1990s – about 70 miles to the west a key element of the Ocado operation was literally about to go up in smoke.
In the early hours of that day, a fire had broken out in his company’s flagship warehouse in Andover, Hampshire. The savage blaze burned for 48 hours, required 200 firefighters to bring it under control, and reduced the £45m building to a twisted, smouldering hulk.
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Ocado had to abandon the 4,000-plus deliveries that usually leave the Andover depot daily in its distinctive food-emblazoned vans; but the fire has done more than spoil the Sunday lunch plans of customers in nearby Winchester and Salisbury.
Although Ocado’s share price had recovered by Friday, the middle of last week saw more than £1bn wiped off the stock market value of the retail-turned-tech firm. Investors worried that retailers, who have been queuing to buy its automated warehouse technology, would take fright at the vulnerability the fire had exposed.
“Ocado is a remarkable business that has led a charmed life,” says Shore Capital analyst Clive Black, who prior to last week’s setback was sceptical about a business that has ploughed vast sums into a series of hi-tech warehouses without delivering meaningful profits for investors.
Andover was not just any old warehouse; it was the prototype for Ocado’s robotic dream. Footage released when the building opened in 2016 showed an army of 600 robots swarming over a 3D frame called the “grid” to locate goods, from tins of baked beans to toilet rolls. Travelling at up to four metres a second, the robots allow a typical order to be filled in around five minutes.
The Andover warehouse is the third iteration of the company’s thinking. While its first two – in Hatfield, Hertfordshire and Dordon, Warwickshire – relied on humans to load crates that sped by on conveyors, in Andover robots took centre stage in an automated warehouse system it marketed to retailers around the world as the Ocado Smart Platform.
After nearly a decade as an unloved listed company, Ocado was propelled into the FTSE 100 last year after Steiner finally sold this grocery-picking expertise to several foreign retail chains. One blockbuster deal is to build 20 warehouses for US supermarket giant Kroger.
From presiding over the UK’s most shorted stock – where investors bet on a share price falling – Steiner found himself running the newly crowned “Microsoft of retail”. The euphoria saw Ocado shares rise to £11.63, valuing the business at more than £8bn and earning Steiner, who owns a 3.4% stake, a place in the annual Sunday Times rich list.
Steiner founded Ocado with Goldman Sachs colleagues Jonathan Faiman and Jason Gissing in 2000, but is the only one to have stayed the turbulent course. Before last week’s disaster, he also had the tantalising prospect of another coup, with news that Ocado was in talks with Marks & Spencer, which has yet to commit to selling food online.
“The whole point of the smart platform is that it is more agile, and Andover is the centrepiece of that,” says Black, adding that there had been doubts over whether the technology driving the operation would ever be a lucrative seller in its own right. Its automated processes were less efficient than had been hoped, and the battery-powered robots were prone to glitches, he said.
At the time of the fire, Andover, which handles about 10% of Ocado’s £1.5bn annual UK turnover, was half-way towards a target of handling 60,000 orders a week. Ocado has warned investors that its closure will hit sales in the coming weeks, though other depots, including its newest site in Erith, south-east London, will pick up the slack where possible.
Investigators have now begun work on identifying the source of the blaze, and Ocado shareholders will be eager to learn whether it is blamed on a design flaw in its technology. Firefighters complained that the dense structure in which the fire took hold was designed for robots rather than humans.
Bernstein analyst Bruno Monteyne says the big question is what the incident will mean for Ocado’s technology arm, but is optimistic: “While the retail business will be materially impacted, we see no reason yet to consider this a major setback for the Ocado technology business.”
Even if the robots are exonerated, the Andover disaster is a major headache for Steiner in what was already set to be a taxing year. Last year’s flurry of contracts mean Ocado engineers are simultaneously managing warehouse projects in the US and mainland Europe and scouting for a fifth UK site. Steiner also needs to thrash out a new supply deal with Waitrose – the current arrangement ends in 2020 – or land a big name like M&S to replace it.
“Ocado’s future depends on delivering the Kroger contract, and the market is pricing in perfect execution, ” says Black. “For me there is a certain irony in that the smart platform [in Andover] which is the backbone of Ocado’s export offer – and has not been proven to work in the UK – is now in ashes.”
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