Ocado Disrupts UK Retailers with Private LTE and Cloud Computing

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3Q 2017 | IN-4667

Ocado is disrupting UK’s fresh food and fast-moving consumer goods retail market. The company relies on unlicensed LTE technology (LTE-U) and cloud computing to deliver its services in the most innovative and efficient manner. ABI Research believes that LTE vendors and service providers have much to gain by studying Ocado as an example of how they are able to add value to other verticals through LTE and 5G.

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Ocado Is Seeing Brick Growth


If Amazon only sells fast-moving consumer goods (FMCG), it will look a lot like Ocado. A UK-based fresh food and FMCG retailer, Ocado has no chain of stores and does home deliveries all from its warehouses. With a total revenue of US$1.6 billion in 2016, the online retailer sells over 50,000 items to over 580,000 active customers. This is arguably tiny as compared to Amazon and Alibaba, global retail giants with over 400 million active users, but Ocado’s steady YoY growth (13.6% in revenue and 13.9% in active customers) and innovative approach will allow Ocado to stay competitive.

The lack of physical stores, such as those run by Asda, Tesco, and Lidl, allows Ocado to concentrate on improving its supply chain and warehouse logistics. Obviously, Amazon’s foray into fresh food market via the Whole Foods acquisition certainly validates its business model, but Ocado has developed very advanced skill sets to set itself apart from its peers.

Private LTE and Cloud Services Bring Agility


As mentioned earlier, as a retailer with online presence, Ocado has to be nimble and agile in its operation. This means being ahead of the innovation curve in its order fulfillment centers. Instead of using manpower, Ocado deploys over 1,000 autonomous robots in their 20 warehouses across UK. An overarching system allows the robots to pick the right products from the right places, calculate the most efficient route and deliver the products to the conveyor belt, all while providing real-time traffic data through various sensory systems located on the robots.

All these communication systems run on 4G technology deployed in the unlicensed 5GHz Wi-Fi band. Deployed together with Cambridge Consultants, Ocado’s LTE-U technology deployment brings communication latency down to a fraction of a second, while maintaining coverage and data throughput.

At the same time, the Ocado warehouse system runs on a distributed data center architecture. The architecture is based on a mesh network configuration and designed to be fault-tolerant. Previously running on the Google Cloud Platform, Ocado switched to deploying microservices in Docker containers and Kubernetes on OpenStack. These microservices run on a large number of desktop computers that serve as distributed nodes, reducing the large investment required for centralized computing, storage, and networking equipment.

Logistics Industry Is Ready for Disruption


The use of unlicensed 4G and cloud native operations helps Ocado to control its capital expenditure while maintaining service availability. This is the right type of adjacent market that ABI Research believes LTE vendors should target. ABI Research is advocating the UnTelco business model, where both LTE vendors and service providers look beyond the existing consumer business and venture into other verticals. In this case, the need for intelligence in logistic solutions as shown by Ocado is a great example where LTE vendors and operators can provide their expertise in wireless connectivity, virtual edge computing, and Big Data analytics.

Ocado admits that there are no readily available warehousing solutions that would fulfill Ocado’s requirements, so it resorts to in-house R&D. At the moment, the company has more than 1,000 software developers in-house. At the same time, the company is also engaging in external R&D projects, including the EU-funded Second Hands project, which develops humanoid maintenance robots and EU-funded SoMA that develops soft robotics hands.

ABI Research believes that digital transformation will arrive in every sector. Armed with the understanding of LTE and 5G technology, LTE vendors and service providers are in sole position to provide this technology to different verticals. We are already seeing many private LTE deployments in public safety, mining, and transportation, as well as trials in agriculture, construction, and healthcare. Serving innovative enterprises like Ocado will not only give LTE vendors and service providers an opportunity to showcase the capability of LTE and 5G, but also to provide value-added services in carrier-grade security, service assurance, and analytics. 


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