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Sobeys orders up online deal

Sobeys
Sobeys

Sobeys Inc. is trading in famous chef Jamie Oliver for another British export, or it could just seem that way.

Sobeys is still selling Jamie Oliver products in some of its stores but I was told the Stellarton- based company’s marketing relationship with Oliver ended during the last fiscal year.

On Monday, however, Sobeys, Canada’s second-largest grocery retailer, announced it had signed another exclusive agreement in Canada with a groundbreaking British corporation. Ocado Group PLC based in Hatfield, Hertfordshire, will be bringing its industryleading online grocery ordering, automated fulfilment and home delivery system to this country. Founded in 2002, Orado quickly become one of the world’s largest dedicated online grocery retailers, operating its own grocery and general merchandise retail businesses under Ocado.com and other specialist shop banners.

The company also has a technology division, Ocado Solutions, responsible for corporate partnering, which began with its agreement to operate the online business of Wm Morrison Supermarkets PLC in the United Kingdom, and more recently with an agreement with Groupe Casino to develop its online retail business in France.

The arrangement with Sobeys — a wholly owned subsidiary of Empire Company Limited (TSX: EMP.A) — is going to start in Toronto with the construction of a 260,000-square-foot fulfilment centre to serve the Greater Toronto Area.

Ocado’s deal with Sobeys also appears to be more of a partnership rather than a straight transaction. Neither company will disclose the financial arrangements.

The Canadian grocery retailer is said to bepaying a royalty to Ocado as part of the arrangement for the use of Ocado SmartPlatform technology, and the British operator will also invest in much of the network, equipment and robots destined for the massive Toronto storehouse.

I’ve been told the location of the new Sobeys/Ocado warehouse has not yet been chosen but the number of potential sites in the Toronto area has been narrowed down and a final selection will be made by the end of the current fiscal year at the end of April.

The Ocado front-end website functionality is supposed to be the best in the business, supported by the British company’s proprietary “web shop” and mobile grocery ordering applications.

Sobeys said in its news release Monday that Ocado’s latest-generation, state-of-the-art automated warehouse is designed specifically for grocery e-commerce. The so-called, last-mile routing management technology is supposed to optimize delivery truck efficiency, customer service excellence and punctuality.

While the new warehouse will be mainly responsible for filling the online customers’ orders, a Sobeys representative said meeting the requirements of online customers would include some Sobeys stores in the Toronto area.

Sobeys management isn’t unfamiliar with servicing online customers. In Quebec, where Sobeys uses its IGA banner, it has successfully offered customers the option to do their grocery shopping on a computer or their smartphone. Sobeys also claims to have been successful in British Columbia for many years, offering the online shopping service through its Thrifty Foods banner.

Sobeys owns, affiliates or franchises about 1,500 stores in all 10 provinces under banners such as: Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Lawton’s Drug Stores, and more than 350 retail fuel locations.

As the Toronto online warehouse comes online and the bugs are worked out, the concept will be expanded to major centres across the country.

Sobeys’ largest Canadian competitor, Loblaw, isalso in the online grocery business, recently rolling out its Click and Collect ordering system in Nova Scotia, where customers may order online and later collect their grocery order at a participating Atlantic Superstore.

While it appears to be a very competitive side of the business, Sobeys management is playing a long game.

Sobeys’ CEO Michael Medline is said to believe the winner in the online grocery battles in Canada will shake out over a period of time and then it will be a one-onone battle between the lone Canadian competitor and Amazon.com, considered one of the world’s most successful retailers.

 

- ROGER TAYLOR

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