Lessons from London: How Ocado is using urban warehouses to fulfil customer demand

The likes of Amazon have intensified this. Its Prime membership offers next-day, and sometimes same-day, delivery, while platforms such as Deliveroo and Just Eat have teamed up with non-grocers for rapid delivery of perfumes, tools, electricals, and gifts.

Online grocer Ocado understands that as a pure-play retailer, the delivery process is the most significant part of the shopping journey and it has to meet customer needs.

“We’re living in a world of reasonably instant gratification and a lot of customers want their big shop as soon as possible,” says Ocado senior property strategy and development manager, Danny Kennedy.

“I can order it from the comfort of my own home, on my phone, laptop, through the app, and the magic happens without anybody really seeing it.”

The grocer reached a milestone of one million active customers in 2024, but how is it managing growing demand?

London location

“Location is probably the most important thing, and proximity to customers is key as we want to be close to customers and offer them as many delivery slots as possible,” Kennedy explains.

Ocado has two units spanning 121,000 sq ft with UK warehousing group Segro in Park Royal, North West London, which manages hundreds of daily deliveries to customers between 5:30am and midnight.

For Segro’s group customer and operations director Paul Dunne, he says the availability of industrial land in London is “so important” as more people strive to live in cities, and that demand needs to be met.

But the company estimates that between 2001 and 2020, 1,483 hectares of industrial space in London was lost – and logistical rents in the city have risen by 122% in that time.

Space is limited in cities, but Dunne says conversations with retailers help determine where the demand is and how to plan locations.

“We plot where those major routes are, where the major population density is, and that will determine where we would like a site,” he says.

“Consumer trends have gone towards shorter delivery times meaning proximity has to be closer. For us, this is why urban locations are vital to operations and certainly satisfying customer demand. 

“The further away you go, the less chance you’ve got to fulfill the customers in the way you want to. You need a combination of big box locations to act as the central hub, but you need a nearby location to be able to give the customer lead time.”

Ramping up tech

While the London warehouse isn’t full of bells and whistles, Ocado and Marks and Spencer’s state-of-the-art customer fulfilment at Segro’s logistics park in Purfleet, Essex, is.

The 304,355 sq ft site is stacked with a fleet of robots that pick a 50-item order in under five minutes.

Dunne explains that some of Segro’s customers are thinking about ramping up automation as a result of the Budget’s “unwelcome costs”.

“One way to drive efficiency is to reconfigure the supply chain, and part of that is reducing the number of warehouses retailers use, but increasing automation in particular locations,” he says.

“Even though costs have been going up in various areas, a lot of our customers are driving efficiency through supply chain redesign – both through location and automation. 

“If they can do both of those things, actually, the overall efficiency goes up. 

Kennedy says the London warehouse is “less tech-centred today”, but there is scope for more technology and automation. For now, the focus is purely on efficiency.

The next step is to make all of the Ocado vans 100% electric with scope for 180 vans delivering to customers, and begin planning for peak.

“We delivered 500,000 orders a week in the lead up to last Christmas,” Kennedy says.

“To fulfil that it took technology, AI, data analytics, optimisation, evolving how we stack routes together, and also predicting what people might add to their baskets for Christmas to ensure that order is spot on.

“We don’t want to come to your house without the Turkey, because it’ll be a rubbish Christmas. It’s years of continuous improvement, it’s engaging with the team from top to bottom to ensure that experience is top tier.”