Ocado's Jason Gissing on Bullingdon Club, Jeff Bezos and being 'shot at'

Ocado co-founder and commercial director Jason Gissing
Ocado co-founder and commercial director Jason Gissing

The Ocado co-founder and commercial director is resolutely optimistic despite the brand's failure to turn a profit in the past decade.

Jason Gissing is trying hard 'not to say anything stupid or inappropriate' when asked about Ocado's summer marketing plans. With a pause for dramatic effect, he offers: 'Naked delivery drivers?'

Gissing is no ordinary commercial director. He was a member of the infamous Bullingdon Club at Oxford University, and counts Chancellor George Osborne and billionaire financier Nat Rothschild among his contemporaries.

'I was just the token foreigner serving drinks,' he quips, referring to his mother's Japanese origins.

Gissing's disarming honesty and whimsical attitude have previously drawn fire from some City analysts who are increasingly impatient with the online retailer's failure to turn a profit.

Financial pressure

Now more than a decade old, Ocado has experienced a turbulent 12 months. This was caused by capacity problems at its Hatfield distribution centre and speculation that the departure of finance director Andrew Bracey in January came because he was concerned about the company's long-term growth prospects.

Whatever the reasons behind it, Bracey's decision prompted a senior management restructuring, and Gissing, an executive director of the business, was appointed commercial director.

His previous role was director of people, culture and communication. However, the co-founder of Ocado and former Goldman Sachs banker says his new remit is wide-ranging.

'It's about what we buy, what we sell, looking after the supplier relationships, working with them on promotions and how we range stuff, looking after the marketing, consumer PR and brand - essentially, all aspects of retailing,' he explains.

Despite the financial pressures, there is no sense of panic at the Hatfield head office. Gissing talks about an upcoming trip to a rather different HQ, Google's Mountain View offices in Palo Alto. He sees it as a chance to soak up the internet powerhouse's culture.

'I'm going to go and be impressed by how wonderfully they treat all their people, which you can do when you generate billions of dollars of profit. This is as opposed to being in a retail business with very slim margins that has famously never made a profit, where you have to skimp,' he says.

Food retailing of the future

Hobnobbing with Google execs seems appropriate given how Ocado identifies itself. 'This is a technology business with a retail interface - this is the future of food retailing,' argues Gissing.

His pronouncement is backed by the latest figures from the Institute of Grocery Distribution, which show that the online market was worth £5.9bn in 2011, and is forecast to rise to £11.2bn by 2016. However, Tesco, which made it first online foray in 2000, the year before Ocado's first pilots, has annual online sales of £2.8bn, dwarfing Ocado's £640m.

The latter's presence might be relatively small, but the supermarket sector is prone to seismic shifts; Gissing points out that the now defunct Safeway was once its biggest player.

Ocado claimed in its interim statement in March that the capacity problems have been resolved, and announced a sales increase of 10.9%, to £162.1m, for the quarter to February.

'Last year, we were trying to rewrite the software platform that runs our facility, increase its capacity and put more stuff through than ever before,' says Gissing. 'That means your margin for error is non-existent. If you get one thing wrong, you end up with massive gridlock. We had those problems on and off through the year, but I think we are through them.'

The retailer received flak for continuing to push offers to attract customers despite being at capacity. However, Gissing argues the facts were misconstrued, claiming that offers were advertised on quieter days.

'The press tried to say:"One of those two things you are doing is dishonest or doesn't make sense." I can say that was not the case,' he insists.

Ocado's marketing activity is heavily focused on online and it extensively uses PPC activity and promotions with partners, including Groupon. Last year, the retailer even briefly launched on the high street, unveiling a 'virtual shop' where consumers could buy a product for delivery by scanning a picture of it with a smartphone. Meanwhile, above-the-line activity is handled, according to Gissing, by its 850-strong fleet of Mercedes Sprinter delivery vans, which double as moving billboards.

Going for growth

Now the capacity problems appear to be behind it, Ocado is focused on long-term growth plans and the opening of its second distribution centre, in the Midlands, scheduled for next spring.

Although international expansion is at the back of its mind, Gissing says the UK food market, which he estimates is worth £140bn a year, is enough to keep Ocado busy. A 3%-4% market share, he explains, would result in a £4bn-£5bn turnover company.

Gissing makes it sound simple, but the company's performance so far suggests otherwise. Ocado's sales last year earned it about 0.5% of the market; a major expansion would be required to reach 3% share.

'Roughly speaking, our automated distribution centre has £1bn of capacity, so if we wanted to grow to be a £5bn business, we would need approximately five of them,' he concedes.

Though a distribution centre is a weighty capital investment - Gissing hints that each one cost hundreds of million pounds - their complex infrastructure also provides Ocado with a distinctive proposition.

Amazon admiration

To illustrate the point, Gissing drops into conversation an anecdote about a meeting the Ocado team had with Amazon founder Jeff Bezos, who told them: 'You can do what I do, but I can't do what you do.'

'We looked at him thinking, "are we in deep doodoo?"' recalls Gissing. 'Then he revealed that something like 30%-40% of Amazon deliveries fail in the UK.'

This means those Amazon customers must often collect their package, whereas Ocado customers can choose a convenient one-hour delivery slot. 'We control that last part of the shopping experience in a way that (Amazon) does not,' says Gissing.

Ocado's record of making 92.3% of deliveries on time - with 98.3% containing no substitute items - has proved compelling to many non-food brands, which have asked the retailer to stock their products. 'It is an extraordinary opportunity,' adds Gissing. 'If a customer trusts you to deliver food to her home to feed her children, plus you are there week in, week out, she will buy all other stuff from you as well.'

Beyond Ocado

Alongside its non-food development, which includes beta testing a new website, Ocado is continuously updating its own-label range. This helps advance its goal to move away from what many consider an over-reliance on products provided by Waitrose, its long-standing partner. Ocado has a 650-strong own-label offer, sales of which have grown 75% over the past year. According to Gissing, 80% of first-time customer orders include own-label items.

'Most of our customers come from Tesco and Sainsbury's, so they are familiar with the good-better-best tiering of own-label. However, Waitrose doesn't always have an equivalent product in that mid-tier, as its core product trades against Tesco Finest. So, we've looked at the whole offer and worked out where there is a gap.'

The Waitrose dynamic is complex. The two retailers became arch-rivals last year, when Waitrose began delivering to Ocado's heartland within the M25.

'If you look at internet food shopping, even if we're only talking about 10% to 20% of the (wider food) market, that still means £10bn to £20bn. There is enough space for everyone,' counters Gissing when pushed about the Waitrose threat. Ocado certainly appears to be weaning itself off its reliance on the chain. Now, only about 20% of its products, or 4000 items, are from Waitrose.

No straight line to succcess

There is no time for Gissing to relax, and he says he often tells Ocado chief executive and co-founder Tim Steiner 'that he's ruined my life'. The next challenge will be posed by the Diamond Jubilee and Olympics, which Gissing admits will 'bugger up our business, because you have restricted traffic routes'.

Meanwhile, it will take a lot to silence City critics. Gissing likens Ocado to a duck on a pond. 'For the past year, we have been the duck that someone is shooting at. We've been paddling away frantically beneath the surface, while above water it has appeared that we're moving along at a normal pace.'

While 'the past 18 months have been bumpy, as have the past 12 years', Gissing is resolute in his optimism. 'The future is extraordinary. It's not going to be a straight line between here and having a multi-national and highly profitable business.

It will go through lots of ups and downs; that is the nature of business,' he adds.

In a rare moment of seriousness, the charismatic Gissing muses on his future. 'Being commercial director is quite a traditional title and set of skills,' he says, before adding a comment that lacks the bluster one might expect from a 'Buller' man: 'I will do my best in this role and if I'm not good enough, we will find someone else to do it. For now, I'm going to give it my best shot.'

THREE CHALLENGES FACING GISSING

- Tackling perceptions of Ocado as a glorified Waitrose delivery service for wealthy West Londoners.

- Developing the company's higher-margin, non-food offering.

- Maintaining brand image while boosting commercial opportunities to take Ocado into profit - and keep critics in the City at bay.

CV

- Banker, Goldman Sachs (1992-2000)

- Founding director and chief financial officer, Ocado (2000-2010)

- Director of people, culture and communication, Ocado (2010-2012)

- Commercial director, Ocado (2012-present)

PERSONAL FILE

Family: Married with four children, living in West London.

Hobbies: 'Tennis, yoga, Greenpeace - though I disagree with them over the nuclear issue - and skiing. My wife used to be the European junior downhill ski champion.'

First job: Fired as a scoreboard operator at Wimbledon after turning up an hour and half before the semi-final instead of the required five hours.

Political encounters: Appears in the now infamous Bullingdon Club picture with George Osborne, and once swam lengths with Conservative stalwart and Haymarket founder Michael Heseltine.

THE CAMPAIGN 'PRICES WORTH CHECKING OUT'

Ocado has stepped up its marketing efforts with a press campaign highlighting its price-match offer against Tesco on branded products.

The press ads, which ran in The Times, The Independent, The Guardian and Evening Standard, used the strapline 'Ocado. Prices worth checking out'.

The attack on Tesco has come as Ocado seeks to erode the former's dominance of the online retail market. Ocado was the first to launch a Tesco price-match scheme, a policy since followed by rivals.

STAT ATTACK

Average order size: £115.49

Down from £118.06

Average orders per week: 116,987

Up from 103,207

4000 Waitrose SKUs within total offer of 21,000

Source: Ocado; 12 weeks to February 2012, compared with equivalent 2011 period

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