Three things to learn from Ocado’s global partners

The British online grocery pioneer Ocado has been building Global partnerships into a second arm for it's business (alongside the UK Retail business with M&S). During the last years Ocado has been able to sign severalbig international grocery retailers into its program of Global partners.

The network of global partners has grown into 10 retailers from different parts of the world. These range from the world's biggest supermarket chain Kroger to ICA in Sweden and all the way to Coles in Australia.

These partnerships include various ways of operating online grocery. For example Ocado has developed a store picking model in some ICA and Morrisons stores.

However, three interesting models have emerged as most interesting.

1. Online can be an efficient channel to expand geographically

Online has radically different kinds of geographical limitations to stores. Stores are restricted by the age old gravity models, which state that the revenues of a store reduce in direct proportion to the distance from the store. For online this dynamic is significantly different.

Kroger and Ocado have used online as a way to reach into two regions where Kroger does not have stores: Florida and parts of Texas (San Antonio & Austin).

2. B2B offers a lucrative extra revenue and profit for online grocery

Business to Business customers provide an additional revenue stream for online grocers. B2B revenue stream often is also more profitable than the traditional B2C business. Mathem in Sweden has talked publicly before the pandemic that B2B had become a significant part of the their business.

Now Kroger is using the fulfilment renters built by Ocado to deliver also to restaurant clients. In this way Kroger is starting to compete head on with the restaurant wholesalers, such as Sysco.

3. A separate brand gives flexibility for the online grocery operation

Many grocery retailers have realised long time ago that they are better of having different banners for the different sized stores: hypermarkets, supermarkets and convenience stores. For some reason majority of physical store operators want to tie the online business into one of the existing store banners (usually hypermarkets).

Ocado's Canadian partner Sobeys went to a different route. They set up a new banner for the online operation: Voila. This gives more flexibility in terms of assortment and pricing. Voila does not need to match either assortment or pricing to the ones seen in the stores. After all, the best place to build profitability for the online business is the pricing of the products, not the delivery fee.

In this way, Voila can compete more equally with the pure play online grocers.