Shares in online grocery retailer and platform provider Ocado (OCDO) gained 1.6% to £21.74 on news it has taken a £10 million stake in Oxford-based self-driving vehicle developer Oxbotica.

Ocado said the purpose of its investment is to collaborate on hardware and software interfaces for autonomous vehicles, ‘enhancing and integrating Oxbotica’s autonomy software platform into a variety of vehicles.’

Uses range from vehicles operating inside Ocado’s customer fulfiment centre buildings and surrounding yard areas, to last-mile deliveries and what the firm calls ‘kerb-to-kitchen robots’, i.e. robots replacing delivery drivers.

ULTIMATE AIM TO REDUCE LAST-MILE COSTS

Ocado said it will be a multi-year collaboration and that the ultimate ambition is to enable its customers that use the Ocado Smart Platform to reduce the costs of last-mile delivery and other logistics operations.

Logistics costs are the single biggest operating cost for online grocery, and Ocado added that moving finished orders from customer fulfilment centres to ‘spokes’ (where they are then cross-docked to delivery vans) represents approximately 1.5% of sales in the UK.

The cost of final mile delivery is approximately 10% of sales, and labour represents approximately 50% of these costs.

Beyond potential cost savings within its core operations, Ocado also sees ‘significant opportunities to improve its partners’ customer proposition’ by being better able to respond to peak delivery demands, reducing the cost-to-serve of its proposition, and accelerating the shift to electric-powered vehicles.

‘WONDERFUL TECHNOBABBLE’

Shore Capital analyst Clive Black called the language in Ocado’s update ‘wonderful technobabble’, adding that it had a ‘marvelous chuckle factor’ due to the amount of technological jargon involved.

But he added that such an investment from Ocado is ‘interesting’ as it represents a ‘divergence of sorts’ from its core purpose to help facilitate largely offline supermarkets to enter the online grocery channel.

Black said, ‘As such the Oxbotica involvement sits alongside a number of investments by Ocado Group that seemingly seek to deepen its proprietary technology credentials, which in time may prove to be an astute move when it comes to actual financial output of the group.’

He also said however that Oxbotica is not alone in its focus on movement of goods in yard areas and delivery robots, ‘with many players around the world active in remote delivery vehicle and drone development’, and added, ‘What we see here is another iteration of the long-standing labour versus capital debate.’

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Issue Date: 16 Apr 2021