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Tesco unveiled plans to launch a new ecommerce initiative last week, as it seeks to help international supermarket chains develop their online operations, in a similar move to fellow UK grocer Ocado.<\/span><\/p>\n Tesco’s Transcend Retail Solutions, which was set up last year, provides software and hardware to international supermarkets to allow them to fulfil online orders directly from their stores.<\/span><\/p>\n It has inked its first partnership with New Zealand\u2019s grocery retailer, Foodstuffs North Island, and is in discussions with other retailers to strike similar agreements.<\/span><\/p>\n How big an opportunity is Tesco’s tech initiative and how much of a threat is it to Ocado?<\/span><\/p>\n Transcend Retail Solutions provides store picking technology to overseas grocers to allow them to carry out online orders from their stores, with the venture\u2019s CEO insisting the business believes it has \u201csomething to offer the market\u201d.<\/span><\/p>\n New Zealand grocer Foodstuffs will use Tesco\u2019s cloud-based picking software to take online orders and map out the most efficient route for pickers around its shops through handheld devices, <\/span>according to The Sunday Times.<\/span><\/p>\n Ocado, which has shifted from an online grocery business to an international technology provider in recent years, works by bringing retailers onto its Ocado Smart Platform, an end-to-end ecommerce, fulfilment and logistics solution that uses artificial intelligence (AI), robotics and automation.<\/p>\n It has partnered with a raft of global businesses and has built automated warehouses for them around the world, recently opening two fulfilment centres in Australia as part of its 2019 deal with Coles.<\/p>\n Former Sainsbury\u2019s, John Lewis and House of Fraser CIO Julian Burnett says Tesco’s initiative is set to \u201ccompete head on with Ocado’s Smart Platform”.<\/span><\/p>\n However, he says the major difference lies in the fulfilment model each favours, and that while Ocado has focussed on \u201cdeveloping large-scale dark store warehouse automation capabilities, developing its own robotics technologies to achieve this,\u201d Transcend is focussed on \u201cautomating the store pick model of grocery fulfilment\u201d.\u00a0<\/span><\/p>\n Former Sainsbury\u2019s group CIO Phil Jordan adds: \u201cOn the face of it, they provide the same customer outcomes.\u00a0<\/span><\/p>\n \u201cHowever, Ocado\u2019s solution set was designed more recently and as a far more automated solution which historically benefited in productivity and efficiency terms.\u201d<\/span><\/p>\n The ecommerce initiative is not the only new ventures Tesco has embarked upon of late, after it launched its new marketplace in June.<\/span><\/p>\n So why is the retail giant pushing ahead with another project?<\/span><\/p>\n Retail Technology publisher and consultant Miya Knights explains that retailers are under pressure to \u201cdiversify their businesses<\/span> and innovate to grow their strategic business models\u201d.<\/span><\/p>\n \u201cTargeting customer audiences through retail media networks is one current example of how they are responding to this pressure.\u201d<\/span><\/p>\n She continues: \u201cReselling core operational capabilities, such as picking ecommerce orders in-store to other retailers looking for greater efficiencies, is another way of monetising its technology-based hardware and software development and investment as another revenue stream.\u201d<\/span><\/p>\n Jordan also points out: \u201cRetailers like Tesco have huge scale and revenues.\u00a0<\/span><\/p>\n \u201cHowever, they remain pretty low margin, so anything they can do to \u2019sweat their assets\u2019 to create incremental growth by reselling their technology or indeed pushing more product through their channels is clearly accretive.\u201d<\/span><\/p>\n \u201cCapturing even a small share of the technology spend associated with this growing market represents a very significant market opportunity for Tesco,\u201d he says.<\/span><\/p>\n Jordan adds: \u201cTranscend clearly presents a material enough opportunity and you can see why smaller international retailers might trust a major retail brand.\u00a0<\/span><\/p>\n \u201cThe real key for Tesco will be to prove that they can trade groceries intensively in the most competitive market in the world and resell their technology at the same time.\u201d<\/span><\/p>\n Despite Ocado’s presence, Burnett claims there is still a \u201cvery big gap in the market\u201d for Tesco’s Transcend, \u201cparticularly in those markets that are less mature than the UK where grocery ecommerce was pioneered by Tesco, Sainsbury’s and Ocado\u201d.<\/span><\/p>\n He adds: \u201cAccessing the advanced technology and expertise offered by Transcend Retail Solutions is likely to be very attractive to grocery retailers operating in those markets.\u201d<\/span><\/p>\n Burnett believes it is \u201chighly likely\u201d Tesco will see \u201cadditional incremental revenue and margin contribution\u201d from the venture, due to the \u201cvery significant global market opportunity” in grocery ecommerce fulfilment.<\/span><\/p>\n He elaborates: \u201cWith a proven solution offered alongside Tesco’s own operational expertise to aid implementation, the risk profile for a grocery retailer choosing to adopt Transcend’s solution is quite low.\u00a0<\/span><\/p>\n \u201cIf Transcend gets its pricing right this new venture has the potential to fly off the shelves.\u201d<\/span><\/p>\n With a new online grocery service on the block, how worried should Ocado be about Tesco\u2019s plans?<\/span><\/p>\n Burnett assures that Ocado and Transcend offer \u201ca different approach to solving the same problem”.<\/span><\/p>\n \u201cFor grocery retailers focused on \u2018store pick\u2019, Transcend is likely to be a big threat to Ocado, which offers a dark store-centric solution.\u00a0<\/span><\/p>\n \u201cThe choice between these two operating models is not clear cut and very much driven by a wide range of geographical, physical, operational and technology related factors which are unique for every retailer.\u201d<\/span><\/p>\n He explains that for some retailers, Transcend will \u201cmake sense,\u201d while for others, Ocado\u2019s Smart Platform will be a \u201ccloser fit\u201d.\u00a0<\/span><\/p>\n \u201cEither way, Ocado now has a major competitor entering the market with a very credible, proven solution and very deep pockets to continue investment in their product and their go-to-market activities,\u201d he adds.<\/span><\/p>\n However, he flags will be \u201ca long time, if ever, that Tesco is taking Ocado’s customers”.<\/span><\/p>\n Jordan adds<\/span>: \u201cI don\u2019t think it will be battle for platform capability that is the success factor but rather Tesco being able to successfully pivot to becoming a technology provider as well as a grocer.”<\/p>\n However, if Tesco can pivot, it gives Ocado reason to watch its back.<\/p>\nWhat is Tesco ecommerce solution?<\/h3>\n
Yet another venture for Tesco<\/h3>\n
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In terms of the opportunity Transcend presents for Tesco, Burnett points out that the global grocery delivery market is set to hit record revenues of \u00a3585.46bn ($770bn) annually by the end of this year.<\/span><\/p>\n\u2018The potential to fly off shelves\u2019<\/h3>\n
Should Ocado be worried?<\/h3>\n
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Shore Capital vice chair Clive Black<\/span>\u00a0notes: \u201cIt could certainly make the market think about alternative online grocery fulfilment models, which in time could be another challenge for Ocado.\u201d<\/span><\/p>\n