Our goal is to provide the best way for our customers to make their regular grocery shop at the lowest cost. We believe in a centralised approach to fulfilment, which gives a number of significant service and efficiency benefits.
We combine the aggregation of scale into large facilities with the use of automation and optimisation technology to drive the overall efficiency of our business.
We have developed unique fulfilment capabilities automating many manual tasks and applying technology solutions and optimisations to operate at the lowest possible cost. This involves optimisations throughout the operation – from receiving, putting away and managing stock, picking and organising orders, to the order dispatch, and efficiently routing delivery vehicles to customers' homes.
This enables us to operate with high accuracy and availability, both critical to providing customers with consistent and timely service.
Critical to our operations is the software that controls it. This is largely developed in-house, and cannot be bought "off the shelf" on the open market. The in-house nature of our software development allows for rapid solutions as efficiency improvement opportunities are identified. This proprietary technology protects our business, differentiating it, and makes it more difficult to replicate.
We now operate the world's two largest and most sophisticated single pick grocery stores, our CFCs in Hatfield and Dordon. Our CFCs form a critical part of the unique end-to-end solution we have developed for online grocery retail. The Dordon CFC, which opened in 2013, has the capacity to generate over 180,000 orders per week, equivalent to around £1 billion in annualised sales.
We typically pick and pack for individual customers up to 1 million items of groceries per day in a single CFC. Our CFCs are designed and built to handle the unique challenges that exist in picking groceries with speed, accuracy and efficiency. This complexity exists when you consider we pick a basket of multiple items (typically over 50) across three different temperature zones and having a customer's order ready to go on the delivery vehicles in the same short time window as the other multiple orders going on the same vehicle.
Ocado's UK fulfilment and delivery locations (including announced)
Future CFCs – CFC3 and CFC4
In July 2014, we announced plans for our next CFC, located in Andover in the south of England. Significantly, Andover CFC will be smaller than our existing CFCs (capable of 65,000 orders per week or approximately £350 million in annual sales value), but critically will be more capital efficient (using capital expenditure to sales capacity).
We will achieve this improved capital optimisation through the use of our own proprietary physical infrastructure solution, which we have been developing over the last few years. With control over the IP and the manufacturing and installation process, we plan to drive the costs down further.
This infrastructure is modular in nature and can be built almost any size. It is also scalable (it can be built in stages), and is faster to deploy than our previous solutions (we plan to open Andover by the end of 2015).
Each of these attributes is attractive in adding flexibility to our fulfilment capacity planning for our UK retail businesses, and for our platform business, including for Morrisons.com, offering to future partners the opportunity to start with a smaller initial capacity.
In January 2015, we announced plans for our next location, CFC4, located in Erith in South East London inside the M25. The landlord will start construction on this site in 2015, and we will take occupation during 2016, with this CFC expected to deliver its first orders in 2017. Like CFC3, this will use our proprietary infrastructure, and so will be built in stages but will be capable of handling in excess of 200,000 OPW.
Hub and spoke delivery system
We operate a hub and spoke system for our deliveries. All stock is stored and picked in our CFCs (the hubs) and non-food distribution centre. Delivery is made direct to customers' homes from hubs to local catchment customers, with the remainder of orders being "trunked" to spoke sites, from where local delivery takes place.
We forecast future delivery capacity requirements for our retail business and that of our partner, Morrisons, developing our spoke network with additional sites. During the year we opened spokes in Ruislip, Enfield, Sheffield and Knowsley. After the period end, we opened a spoke in Dagenham, and in February 2015 we are due to open a spoke in Park Royal to replace our smaller White City spoke.
We have acquired additional sites and expect to add further spokes in 2015 to satisfy the increasing demand for our business and our partner's business.
Product waste low and reducing
Our centralised model enables us to carry low inventory levels, and despite our relatively high proportion of sales of fresh and chilled products (over 40%), we believe we operate with the lowest product waste in the industry (at significantly less than 1% of sales). This reflects the freshness of the products we deliver to our customers and underlines the relative environmental benefits of our operating model.
We optimise the delivery to customers using our own van fleet and technology