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Ocado takes technology route to online delivery

E-tailing: Daniel Thomas finds that firms in the retail sector are still in the' trial and error' phase of e-tailing

The Waitrose-backed online grocer Ocado began a full-scale pilot of its service last week, vowing that "sophisticated technology" will give it an edge over rivals such as market leader Tesco.com.

Ocado said the first semi-automated picking centre of its kind in the UK, allied with a strong focus on customer service, will help it to make a mark on the UK online grocery market, which analyst firm G2 estimates will be worth £33bn by 2005.

The world's largest ever purpose-built warehouse, in Hatfield, will, at its peak, process orders to the equivalent of 20 large supermarkets, said Nigel Robertson, joint managing director of Ocado.

He said the company, which received £46m from Waitrose parent the John Lewis Partnership and £20m from investment bank UBS, is confident in the warehouse model, despite the failure of US online grocer Webvan and Tesco.com's success with the store-picking model.

"Unlike Webvan, we have the Waitrose brand and we are on the end of the Waitrose supply chain so it is not a question of starting from scratch," he said. "And unlike the supermarkets we are absolutely focused on the online business."

Ocado has promised to deliver goods within a one-hour time slot and is working with logistics software provider Descartes to achieve this.

Descartes is providing its Deliverynet for home delivery and consumer direct suite, which includes traffic routing and scheduling software. "During initial trials, we have been easily within the one-hour mark," said Robertson.

One of the biggest issues for online shoppers is fulfilment, in particular when goods requested are substituted. Ocado aims to overcome this with a predictive ordering system that is linked to stock levels. If a product is out of stock, the consumer will be informed while they are online.

"We want substitutions to run at less than 5% - considerably less than the15% regularly experienced with other services," said Robertson.

The trial initially covers the Hemel Hempstead area. Ocado aims to cover all of the major urban areas in the UK within the next five years.

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