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Milestones on the road from retailer to tech company

Zalando and Ocado have both made the switch from being retailers to technology companies, understanding the important part that logistics plays in ecommerce. Both have reached new milestones this year. eDelivery explains.

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Zalando operates 14 fulfilment centres across Germany, France, Italy, Sweden and Poland
Zalando operates 14 fulfilment centres across Germany, France, Italy, Sweden and Poland

Ocado and US supermarket chain Kroger have begun work on the first of 20 customer fulfilment centres (CFC) which will use Ocado’s smart picking and packing platform. The CFC, located in Southwest Ohio, is set to become operational in spring 2021.

Kroger has invested a total of $55m (£43.4m) for the 335,000sq ft building, with Ryan Companies contracted to design and build it. It expects the site to create over 400 new jobs.

“With construction starting for Kroger’s first customer fulfilment centre in the Cincinnati region, we are now well on the way to a nationwide revolution in how Kroger customers experience ecommerce,” says Luke Jensen, CEO of Ocado Solutions.

“In a fast-developing landscape for grocery retail, Kroger’s determination to continue delivering the best experience for its customers, online as in stores, is unparalleled.”

Rodney McMullen, Kroger’s chairman and CEO comments: “Kroger is incredibly excited to reach this meaningful milestone in our Restock Kroger vision to serve America through food inspiration and uplift.”

He adds: “Our partnership with Ocado will introduce transformative ecommerce, fulfilment and logistics technology in the US and bring customers fresher food faster than ever before, accelerating our ability to provide anything, anytime, anywhere.”

The next two CFCs to be built will fulfil orders in central Florida and the mid-Atlantic region.

Meanwhile in the UK, Ocado and Morrisons have altered the terms of their agreement, allowing the former to use more of its own warehouse space following the fire at its Andover CFC in February 2019 which saw Ocado lose 10% of its fulfilment capacity. It also enables Morrisons, which is a customer of Ocado’s automation technology Ocado Solutions, to expand its partnership with Amazon.

The agreement will see Morrisons.com, suspending its use of Ocado’s Erith fulfilment centre. Currently it accounts for over 10,000 orders from the site and has the right to use 30% of the centre’s future order capacity.

Morrisons will resume using the warehouse in February 2021 but in the meantime it will be able to fulfil orders from store through Ocado’s store pick solutions and will pay lower store pick fees, as well as not having to pay for any of the costs of using the Erith centre.

In addition, the grocers have agreed to relax exclusivity provisions which prevented Morrisons from working with other digital partners such as Amazon.

Morrisons is pleased with the arrangement and its ability to “help our partner in times of need after the recent fire”. David Potts, CEO, Morrisons comments: “We will keep growing Morrisons.com for our customers and save some cost, returning to the Erith CFC when it is more mature”.

He adds: “Our new agreement allows us to have more than one digital partner, and opens the way for significant potential opportunities and partnerships in this important growth area for Morrisons.”

In a letter to investors, Ocado reported that a malfunction with a battery charging unit on the robotic grid was to blame for the fire. It caused the plastic lid on a robot to catch fire. The company has since undertaken a number of safety measures to prevent another fire, including removing the plastic lid and introducing localised smoke detectors. In the future, the grocer will also add heat sensors in the storage grid.

Ocado said the charging units were only used at the Andover distribution centre.

The letter concluded that the “assessment of the reasons for the fire at CFC 3 gives the Board confidence that, going forward, there are no significant implications for the risk profile of the Group’s assets or the viability of the Group’s model, and therefore for either Ocado Retail or the rest of the Group.”

Investment house Peel Hunt has pronounced the Ocado warehouse automation platform as being more advanced than that of Amazon. Peel Hunt analysts James Lockyer and Damindu Jayaweera visited Amazon’s most technologically advanced European warehouse in Tilbury and said that it had left them “underwhelmed” compared to Ocado’s technology.

For one thing, they pointed out that Ocado’s robots move three times as fast as Amazon’s. They also used the example of Ocado being able to differentiate between the different ripeness of fruit as one area.

They also claimed that Amazon’s warehouses are less efficient due to spare capacity outside of peak season, with utilisation rates at 50% for most of the year and 90% between October and January.

They have advised clients to invest in Ocado, saying that they believe “the management has the vision to take Ocado’s success today to become the Microsoft of Retail tomorrow”.

Ocado has since opened an innovation centre in London to work on its Smart Platform focusing on areas including machine learning, big data, simulation and the cloud. The initial group of 40 employees in what is its sixth innovation centre will grow to 300 over time.

German retailer turned marketplace and technology company Zalando has seen the number of partners for its Zalando Fulfilment Solutions (ZFS) business grow 300% to over 100. ZFS gives fashion brands access to its logistics infrastructure. Over the past year, the number of items shipped through ZFS has grown 400%, with the share of items sold via the partner programme that uses ZFS grew 200%.

Through the service, Zalando takes over customer fulfilment for its fashion partners, from inbound to returns processing so that its customers receive an entire Zalando order in one parcel regardless of the brands purchased. According to the company “on average, our customers buy fashion from 13 different brands per year in the fashion store. As a result, 76% of items are ordered in multi-brand orders.”

In a new addition to the service, Zalando will also handle fulfilment for brands which aren’t sold on the Zalando site. The company is running a six-months trial with Adidas which sees Zalando fulfilling orders from Adidas.fr.

As well as this multichannel option, Zalando is also launching fulfilment in Switzerland somewhere which CFO David Schröder says is a “very attractive market that has been complex to serve for many partners from their own logistics footprint”.

A third service launched by Zalando will be piloted in Q4 and allow partners to shift remaining stock to Zalando’s discounted Zalando Lounge range, which will increase stock flexibility and limit inventory risk.

The new features apparently aim to alleviate a range of concerns over the service’s impact on stock availability and flexibility, which were highlighted by investor firm UBS earlier this year.

Zalando is also expanding its fulfilment network with a new warehouse in the Netherlands to support its ambitious growth targets in Western Europe. It operates 14 fulfilment centres across Germany, France, Italy, Poland and Sweden. The warehouse, which opened in Sweden in January this year is the most advanced in terms of automation built with the aim of cutting lead times in half for Nordic customers.

Outbound processes in the 323,000sq ft fulfilment centre are automated to ensure efficiency and throughput of orders and to cut “monotonous and non-ergonomic tasks”. This extends to pocket sorters and 50 ‘butler’ robots from GreyOrange. These autonomous robots carry product on shelving for human packers to place into customer orders. Around 500 people are employed on the site.

Overall, Zalando handles 60 different delivery and return options for shoppers including fast delivery which can see a parcel delivered in just 25 minutes.

Zalando still has its sights set on capturing one-fifth of Europe’s online fashion market and wants to increase the amount of product sold on its platform, growing gross merchandise volume (GMV) from its current level of €6.6bn (£5.93bn) to €20bn (£17.97bn) by 2023/24.

This it will do through its partner programme, of which ZFS is a part. “Platforms are the future. Customers want to buy as much fashion as possible from a single source; across all brands and price points. We want that source to be Zalando: the starting point for any fashion journey our customers might take,” says Marco Scheufel, commercial lead, ZFS.

He continues: “To be able to offer customers the assortment they are looking for we invest in brand partnerships. From the beginning, we built close and long-term partnerships with our brand partners. We offer them various services, like the Partner Program, Zalando Lounge and Zalando Marketing Services that help them scale their businesses. Partner Program is the key growth driver for our platform, and will account for 40% of our GMV in 2023/24. ZFS is offered within the Partner Program for partner brands only.

“The savings brands enjoy as a result of reduced fulfilment costs with ZFS allow for an expanded assortment across all price points. The result is that our customers have access to a vast assortment: this is how we become the Starting Point for Fashion. Today every third order from our partner program is already handled by ZFS. By 2023, we want to increase this ratio to 70%”.

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