What Ocado Group Plc (LON: OCDO) is going to achieve with the acquisition of Kindred Systems

Summary

• Ocado has acquired San Francisco-based robotics company Kindred Systems
• Since its inception in 2014, Kindred Systems was amongst the pioneers to deploy AI and reinforcement learning to develop a process of handling disparate items
• The acquisition will help Ocado in developing robotic picking solutions, improving their speed, accuracy for their orders

Leading online grocery platform and solutions provider Ocado Group Plc (LON: OCDO) has acquired San Francisco-based robotic solutions company Kindred Systems Inc for $262 million in cash. Ocado had initially announced the acquisition of Kindred Systems in the first week of November.

Robotic solutions company Kindred Systems has a team of 45 engineers and 90 staff in total and has expertise to build robots that can be used to pick and pack online orders.

This move by Ocado Group can be attributed to the growing need of technological advancement across the sector. Ocado aims to expedite the implementation of robotic solutions in devising picking solutions.

Kindred Systems has offices in San Francisco and Toronto and specialises in the design of robots to facilitate order fulfilment and e-commerce. With its acquisition, Ocado is expected to leverage upon the robotic expertise to improve the speed, accuracy, product range and economics of picking solutions.

(Image Source - ©Kalkine Group 2020)

Since its inception in 2014, Kindred Systems was among the pioneers to deploy artificial intelligence and reinforcement learning to develop a process of handling disparate items that can be used by AI-powered robots with motion control and vision. The robots are engineered to operate with remote assistance with a high pick rate and minimal downtime. By the end of this year, Kindred Systems is expected to have 180 robots installed across its client base.

Nearly 50 employees from Kindred Systems are expected to join Ocado’s existing technology team. Moreover, Kindred is expected to churn recurring revenues to the tune of US $35 million in 2021.

On Ocado’s part, investment in advanced technology is aimed at improving the consumer experience. Many supermarket chains are investing heavily in technology. For instance, UK’s leading supermarket chain Tesco Plc (LON: TSCO) has partnered with Irish start-up Manna and had trialled drone deliveries of essential items in October. The airborne groceries are a reality now.

Also read: Tesco’s Experiment with Drone Can Be A Game Changer for Supermarkets

Ocado’s Q4 Business Highlights

(Source: Company’s filings, LSE)

For the FY2020, Ocado Group expects EBITDA to be in excess of £70 million. In Q4, Ocado made good progress with strong demand for online grocery and the continuation of a smooth trading week. In 2021, the company is planning to open three new warehouses.

Due to prevalent uncertainties in the trading environment, Ocado follows a prudent approach for the next fiscal. Its business is in a very good shape with a strong balance sheet and good cash generation.

The retail revenue of the company increased by 35 per cent year-on-year, with strong demand for online grocery during the Q4 of 2020. Average order size stood at £133; Ocado has shown progress in orders per week with a growth rate of 3 per cent year-on-year.

Ocado is proactively stockpiling

The FTSE 100 listed online grocer is stockpiling products with long shelf lives such as Italian beer in anticipation of no-deal Brexit. However, there might be a slight disruption in the supply of fresh foods.

Kindred Systems and Ocado

The technological advancements will not just help in serving the vulnerable sections of the society, but also act as a hedge against the future pandemic like situation. AI and robotics mitigate the risk of spreading viruses to a major extent and improve the shopping experience of consumers.

The one downside of this acquisition is that it might lead to a certain amount of job losses.