Yahoo Finance Ocado faces week of disruption after second warehouse fire
Ocado customers face a week of disruption to orders following a fire at the online grocer’s biggest warehouse.
The blaze broke out late on Friday after three robots used to handle orders collided at the Erith facility in southeast London, the FTSE 100 company said.
It can handle about 150,000 orders a week under its joint venture with Marks & Spencer.
“While we expect some disruption to operations, we are working to restore normal service as soon as possible,” Ocado said.
It predicted that operations would resume at Erith “within the coming week” and thanked customers for their patience.
Damage affected less than 1pc of the robot grid and was contained by fire prevention measures.
The blaze required about 100 firefighters and 15 fire engines to tackle. “The fire was deep seated and was a challenging operation,” the London Fire Brigade said.
More than 800 workers were evacuated from the facility but none were injured.
We're really sorry. Due to a major incident at our Erith warehouse some of our orders have been cancelled. Please be patient with us while we manage this. If this impacts your order, we will be in touch. Thank you.
— ocado (@Ocado) July 16, 2021
The incident is the second major fire to hit an Ocado warehouse in the past three years following a blaze at its Andover, Hampshire facility in February 2019 that took more than 24 hours to bring under control.
Another fire occurred at Erith laster that year when an industrial skip caught alight.
Earlier this month the M&S chairman, Archie Norman, said Ocado was still struggling to meet demand from customers almost a year after it switched from Waitrose to M&S products.
He told the company’s annual meeting that although M&S was pleased about “where we are, I’m not saying there aren’t issues”.
“Working in a joint venture, you have to put a bit more work into it to make sure you’re aligned,” Mr Norman added.
“We have to position our [food] business right for [online], and make sure that Ocado has the right growth in place. It doesn’t cover a lot of the country, there is a lot of investment due to it.”
‘One fire is unfortunate – but two?'
Social media was filled with unhappy Ocado customers over the weekend complaining that they were unable to receive their weekly shop following a fire Ocado’s largest warehouse in the UK in Erith on Friday night, forcing it to cancel orders.
“One fire at a depot is unfortunate. But two? Makes one wonder if the automation model is fatally flawed,” tweeted one unhappy customer. “Combined with sharp rise in substitutions and out of stocks since [the] switch to M&S, if this now means weeks of disruption then I fear my 16-year subscription is at serious risk.”
One fire at a depot is unfortunate. But two? Makes one wonder if the automation model is fatally flawed. Combined with sharp rise in substitutions & out of stocks since switch to M&S, if this now means weeks of disruption then I fear my 16 year subscription is at serious risk
— Christian Mole (@KentishMole) July 16, 2021
Being forced to cancel thousands of orders due to another warehouse fire is bad enough for Ocado, but more seriously it risks overshadowing the company’s attempts to sell its robotics technology to retailers around the world.
Investors will be looking for reassurance today that the incident, caused by three robots colliding, does not risk overshadowing Ocado’s wider business.
“In the last four years, how many fires have Ocado’s competitors had in their warehouses?” asked one contributor to an online investment forum on Sunday.
Ocado is likely to point to sheer bad luck as a cause of the incident, but shareholders will not be pleased that Ocado is once more in the news for the wrong reasons, with images of fire engines rushing to one of its facilities.
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The Erith warehouse was first ablaze in August 2019, when a skip outside the main building caught alight. Months earlier, the company suffered a far more serious blaze at another of its key robotics hubs in Andover.
The Hampshire fire sent Ocado shares tumbling 12pc as shareholders learned that the building’s roof had collapsed, shutting down its robotics grid system in the building. That fire cost Ocado £110m, pushing the company to a £142m half-year loss.
Another fire two years later risks upending Ocado’s carefully maintained image as a British retail and technology success story.
Ocado’s hope is that its British grocery delivery partnership with Marks & Spencer will become a small part of far larger revenues to be generated by licensing its robotic technology to retailers around the world.
Last year it officially opened the doors on the first international Ocado warehouses for Groupe Casino in France and Sobey’s in Canada. In 2021, the company plans to expand that to 10 warehouses worldwide using its boxy robots.
US supermarket Kroger has announced plans for 10 Ocado robotic warehouses in America, with the option to build 10 more.
Maintaining the revenue from continued global interest in Ocado’s technology, the guinea pig of which has been its UK operations, relies on a mixture of secrecy and showmanship.
Closely guarded secret
Even back in 2016, Ocado’s robotics technology was a closely guarded secret. Executives forbid any journalists visiting the company’s warehouses from taking any photographs of the elaborate system of ramps that transport plastic bins full of groceries around the building.
Their fear, justified or not, was that supermarkets such as Tesco would pore over any images that emerged in the hope of replicating Ocado’s technology.
Back then, its Hatfield warehouse complex appeared rudimentary. Senior employees would use their arms to hold back bins full of groceries, causing a pile-up of vegetables and ready meals as visitors clambered over moving belts.
Ocado’s robots now entrance observers and slick marketing videos show them travelling at speeds of up to four metres per second around a grid the size of several football fields.
The robots collect plastic bins of items underneath them, taking them to “picking” stations for humans or other robots to sort into customer orders.
Tim Steiner, Ocado’s chief executive, hasn’t been shy about extolling the virtues of its technology.
Kroger’s partnership with Ocado “will transform the American grocer into the number one player in e-commerce in the US”, he has said, predicting that it could even overtake Amazon.
With Kroger’s 2020 revenues sitting at $122bn compared to Amazon’s $386bn, the company still has far some way to go.
Friday’s fire – Ocado’s second blaze inside a robotic warehouse – risks dissuading international retailers from spending millions on licensing the technology, as well as a further £7m annual bill per facility.
Time to reassure investors
However, retail analyst Richard Hyman dismisses the headlines following the latest fire and does not believe it will cause lasting damage to the company.
“These fires have been bad luck,” he says. “Most of Ocado's business is in selling its IP. I personally don't think that having a couple of fires really is going to make any material impact on that. If they keep having them then that is an issue for the business as a whole.”
Bad luck though they may have been, it’s now down to Ocado to reassure investors that the two warehouse fires were accidents rather than some type of fault with the robots.
The company has played down the damage and says damage affected a small section of less than 1pc of the grid. “While we expect some disruption to operations, we are working to restore normal service as soon as possible. We expect the facility to begin operating within the coming week.”
In 2019, analysts were quick to move on from fears of a wider problem caused by the Andover fire. “While the retail business will be materially impacted, we see no reason yet to consider this a major setback for the Ocado technology business,” said Bernstein analyst Bruno Monteyne at the time.
It remains to be seen whether risk-averse supermarkets and online retailers will take fright after a second fire inside one an Ocado warehouse. Some may decide that Amazon’s reliance on humans, albeit augmented with clever software that shows them where to go inside its warehouses, is a safer option.
