“Disappointed” was Ocado’s verdict this week after it lost a High Court fight to open a new distribution centre in North London. 

Ocado warehouse in Andover

Ocado’s High Court defeat offers an indication of the businesses that will and will not withstand the heat

That was its public position, at least. Privately, the grocer’s mood is perhaps better described as seething, mixed, almost certainly, with a degree of concern about what the decision might mean for the future of its rapid delivery proposition, Zoom. 

Ocado suffered defeat in its long-running battle against Islington residents and councillors, who blocked its proposed development in Tufnell Park. Parents of pupils at nearby Yerbury Primary School voiced concerns over the impact the depot – which would have allowed Ocado to deliver to local customers within an hour – would have on pollution and noise in the area. 

It is not the first time such plans have faced opposition. 

Ocado rattled in its heartland

Earlier this year – in the same borough, no less – German tech firm Gorillas found itself on the end of a consumer backlash after opening a fulfilment centre in Angel, also in Islington. And Deliveroo pulled the plug on plans to open a dark kitchen - where its restaurant clients could cook meals to order without the need to open its own premises in the area - on the nearby Caledonian Road.

Gorillas is one of a number of on-demand delivery companies that have gained traction during the coronavirus crisis. Its model is based around local warehouses, partnering with local farmers and brands relevant to each city in which it operates – including Amsterdam, Paris, Berlin and Milan – to build and maintain stock. Given the proximity of those warehouses to urban, densely-populated areas, it promises to deliver goods from those warehouses to customers’ homes in as little as 10 minutes.   

Dija, founded by former Deliveroo executives Alberto Menolascina and Yusuf Saban last year, works in a similar way and has ambitions to take London by storm this summer, with plans to offer its services in 20 locations across the capital.  

But Ocado Zoom, Gorillas and Dija represent just the tip of the iceberg. Turkish grocery delivery start-up Getir, which launched in London in February, raised another $550m last week, taking its valuation to a whopping $7.5bn. Others such as Zapp, Jiffy, Weezy, Fancy and Beelivery – yes, they are all genuine app names – are also vying for a share of the so-called quick commerce – or ‘q-commerce’ – pie.

Deliveroo bike rider in the sun

Leading grocers including Tesco and Aldi are monitoring developments with keen interest, believing it could represent a key category for future growth. As investors pile in, more than £5bn has been ploughed into on-demand delivery companies this year alone. 

Ultimately, though, this might not prove to be an iceberg that established grocery retailers are destined to collide with, but one that could slowly melt away in such a hotly contested market.   

Ocado’s High Court defeat offers an indication of the businesses that will and will not withstand that heat. 

Warehouses a step too far for local communities

The backlash from Tufnell Park residents will be of particular concern to Ocado. Islington is exactly the sort of area that the etailer would deem its heartland – it delivered to one-in-six households across the borough last year – and would have banked on securing support from its existing customer base there.

Yet it seems the presence of new warehouses in their local communities is a price that consumers are simply not ready to pay for the privilege of having their avocados and quinoa dropped on their doorstep before they can finish an episode of The Crown.

That raises broader questions around the q-commerce sector and the models being banked on by the likes of Getir and Dija. Will such companies manage to secure buy-in from enough local authorities and residents to open the depots they require to substantially grow? 

What is the common denominator in all of these propositions?

Until now, Ocado has been unwavering in its commitment to being an online-only grocer, and its answer to the conundrum of getting closer to its core customers and delivering to them within an hour was to open mini fulfilment centres. This week’s developments at the High Court, and other revolts against new warehouses and dark kitchens, suggest that particular model may need to change.

Perhaps, despite the evolution and growth of rapid delivery businesses, it is actually the established order that is getting it right. 

Retail Week revealed only last month that Tesco has launched a trial of its Whoosh speedy delivery proposition in Wolverhampton, fulfilling orders placed online or via the Tesco app by bike, moped or car within one-hour.

Sainsbury’s Chop Chop service, promising baskets of up to 20 items within 60 minutes, has grown from a London pilot to 15 towns and cities, delivering orders by electric bike. 

‘NOcado’ campaigners labelled their victory over the grocer as a “landmark” moment

Morrisons offers rapid delivery through its partnership with Amazon, and it has also joined peers such as Waitrose, Aldi, the Co-op and Marks & Spencer by teaming up with Deliveroo during the coronavirus pandemic

The common denominator in all of those propositions? Stores. The vast majority of on-demand grocery orders placed with Ocado’s mainstream food retail rivals are not fulfilled from depots or dark stores, but existing networks of supermarkets and convenience shops - assets that Ocado, Getir and Weezy and their counterparts do not have at their disposal.

Using existing stores as mini fulfilment hubs in such a way minimises the impact on local communities - and does not require the same level of capex or council consent that new warehouses do, eliminating such stumbling blocks to growth. 

‘NOcado’ campaigners labelled their victory over the grocer as a “landmark” moment, but the repercussions will be wider than even they might have imagined. The High Court ruling could be a pivotal one, not just for Ocado’s ambitions for Zoom, but in deciding the winners and losers in the booming q-commerce market.