After the second fire at an Ocado fulfilment centre in the space of eight months, Retail Week looks at whether the grocery pioneer has a systemic problem on its hands, or if it has simply been unlucky.
This morning, online grocer and retail technology giant Ocado revealed that overnight “a small fire was reported” at one of its customer fulfilment centres (CFCs) in Erith, south-east London.
The retailer said London Fire Brigade (LFB) had been called and the blaze had been extinguished. Ocado was at pains to emphasise that “no part of the material handling equipment” – ie: the robotic picking technology – was involved in the blaze, which had started outside the depot in a hopper containing waste packaging.
It was the second time this year Ocado has been hit by fire, after its centre in Andover, Hampshire, was engulfed in flames in February.
Beyond the statement this morning, Ocado has made no further comment. However, a source close to the business insisted the Erith fire bore no similarities to what happened in Andover, where Ocado’s newest, ‘state-of-the-art’ automated facility was destroyed after an electrical fault caused the lid of one of its grocery-carrying robots to catch alight at a cost of £98.5m.
The fire also affected Ocado fulfilling customer orders from the facility overnight, with the retailer noting “there was some disruption to picking and some customer orders have had to be cancelled”.
LFB said four engines and 25 firefighters were called to the Erith incident, where “a conveyor belt and external motor” were damaged before the fire was put out by an overhead sprinkler.
While Ocado has been understandably keen to distinguish between the two blazes, Shore Capital analyst Clive Black says the fact the business is in this position at all is “remarkable”.
Two fires in the space of less than a year is striking. The question is, will Ocado’s international partners and investors be forgiving?
Perception becomes reality
Ocado’s share price was trading down by as much as 2.9% this morning following the news but has since rallied to be down less than a percentage point at the time of writing.
Broker Exane was sanguine, observing that “the fire was outside the building in waste material” and therefore its origin was “totally different [to Andover] and it seems unlikely it can be attributed to the equipment Ocado uses”.
Broker Numis took a similar view and described the fire as a “small incident unrelated to any Ocado equipment”.
“They have to manage the news stream incredibly well and manage their customers’ expectations well”
Jeremy Wilson, Practicology
While that may be so, chief commercial officer at ecommerce consultancy Practicology Jeremy Wilson believes the latest fire is a “warning sign” for Ocado.
He said the business will need to be proactive when it comes to communicating the reasons for the incident with its investors, as well as with the media.
“What they need to be careful of is that people’s perception will start to be negatively influenced,” he says. “They have to manage the news stream incredibly well and manage their customers’ expectations well. Perceptions become reality, and they can’t let the perception be reached that there’s a problem with their technology.”
Black agrees and pointed out a second blaze is likely to increase Ocado’s insurance premiums, and therefore its operating costs, which would already have been inflated after Andover.
“This incident is going to do absolutely nothing to improve their insurance reputation and costs,” Black believes.
GlobalData UK retail research director Patrick O’Brien adds: “One fire looks unfortunate, two looks like carelessness. But, if it wasn’t for the first fire, I doubt this relatively smaller second one would have got much attention.”
Partner problems?
Another concern for Ocado will be the impact this second fire might have on its international customers – particularly given the spate of deals its Solutions arm has struck around the world over the last 18 months or so.
For Black, as long as Ocado can reassure international partners the Erith fire was not the result of a systemic issue with its automated technology, this latest incident is unlikely to prompt deeper concern.
“Subject to a rational explanation, and as long as it has nothing to do with the operating platform, I’m sure customers might raise an eyebrow but not much more,” he said.
“I imagine pretty firm questions were asked after Andover. The circumstances around this new fire will certainly be of interest to [partners].”
Wilson is certain the latest round of negative headlines will reach Ocado’s partners and it must be seen to react seriously.
“What they can’t afford to do is let rumours go around. It’s got to be a consistent message – ‘we’re not cutting corners, we take it seriously, we’re a serious business and this is what we’re doing about it.’”
Shore Capital’s Black says fires at warehouses “aren’t uncommon”, but Wilson says he has only ever worked with one client on an incident when the fire brigade was called out to such a facility “in many years”.
Wilson believes it is critical Ocado does not allow itself to be seen “skipping over health and safety in the drive for growth”.
While most in the City seem to agree the latest fire is an unfortunate blip that won’t affect any of Ocado’s vitally important overseas partnerships, all agree the business can ill afford a third incident any time soon.
The old adage goes that there is no smoke without fire. The facts about the latest blaze, when clear, will either stop a reputational flare-up from spreading or fan flames of concern.
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