British online grocer Ocado, known for its automated warehouses, acquires two U.S. robotics companies

November 2, 2020, 12:44 PM UTC

Ocado, the U.K. online grocer that has increasingly sold its e-commerce and automated warehouse technology to other supermarkets around the world, has acquired two U.S. robotics companies.

The acquisitions will bolster Ocado’s grocery technology, enabling the company and the other supermarkets it serves to replace some current warehouse workers. It also signals Ocado’s move into helping other kinds of retailers fulfill online orders.

The company said Monday that it has bought Kindred Systems, a San Francisco–based robotics company whose warehouse robots help customers such as Gap and American Eagle Outfitters, for $262 million in cash. It is also buying Haddington Dynamics, a small company based in Las Vegas that makes a sophisticated robotic arm for customers including DuPont and NASA, for $25 million in cash and stock.

“We have been investing in autonomous robots and picking for a decade,” says James Matthews, CEO of Ocado’s technology division, which builds the systems that Ocado’s own grocery business uses, as well as the tech it sells to other grocers through its Ocado Smart Platform. “This is about how we invest more to do more, more quickly.”

Ocado said that the acquisitions would add about $38 million in revenue to its annual revenues, which last year were about $2.3 billion. The company said the acquisitions would make a small dent in its profits, but overall it raised its full year profit forecast to $77.8 million, up from $52 million. Ocado’s shares, which are listed on the London Stock Exchange, jumped 7% in response.

Ocado has been one of the best performing publicly listed U.K. companies during the COVID-19 pandemic, as online grocery shopping has soared. Although its automated warehouses had trouble keeping pace with a surge in demand during March and April, the company soon recovered, in part by adding more warehouse workers and delivery drivers.

The company also sells its online ordering and automated warehouse systems to customers that include Kroger in the U.S. and Sobeys in Canada.

Ocado, which has no physical retail stores, runs some of the most automated grocery order fulfillment centers in the world. These warehouses use thousands of robots, each about the size and shape of an office copy machine, to grab items from crates stacked in a huge steel-and-aluminum lattice that the company calls “the hive.” The robots bring these items to a “pick station,” where in most cases, a human worker assembles each customer’s order, packing it into shopping bags for delivery.

Humans also have to “decant” items that are delivered to the warehouse from suppliers and feed them into the hive. This process involves removing items from shrink-wrapped pallets or unloading boxes and then packing them into the plastic crates that are fed into the hive.

These two human-driven processes—decanting and picking—cost about $9 million per warehouse per year, Ocado said in a statement. And it is these two processes that Kindred’s and Haddington’s robotics systems are designed to help automate.

Paul Clarke, Ocado’s chief technology officer, has said he envisions the company eventually moving to completely “dark” fulfillment centers—ones that would be fully automated and employ virtually no people.

Kindred’s robots are particularly good for handling boxed items or soft items such as clothing. Matthews said that Ocado’s purchase of the company would help Ocado and its supermarket clients add more general merchandise to their online offerings.

But, given Kindred’s existing relationships with retailers such as Gap and American Eagle, he said the acquisition also signals a long-anticipated strategic move by Ocado into selling e-commerce and automated fulfillment technology to other kinds of retailers besides just grocers.

Matthews said that Ocado would begin using Kindred’s robots almost immediately and would roll them out to its other customers within the next two to three years.

As for Haddington, its robot arm is considered one of the most lightweight and dexterous currently being sold. Matthews said that the arm would potentially enable Ocado to automate the sorting and picking of a wide range of items, including very delicate ones such as fruit, which is difficult for most robots to handle without bruising or damaging it.

Matthews said Ocado had conducted a yearlong search to find robotics companies that could help it further automate its operations, closely scrutinizing about 15 businesses before settling on Kindred and Haddington.

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