Ocado Eyes Vertical Expansion With £17 Million Investment In Vertical Farming

Ocado, the UK-based online groceries and warehouse tech company that has been making a splash internationally over the last couple of years, has announced it is to make a £17 million investment in the vertical farming industry. The company has said it has agreed two deals in the innovative and still nascent sector which involves indoor farming of crops in 3D.

Plants are grown on stacked levels using specialist lighting and advocates highlight the greater efficiency vertical farming represents compared to traditional outdoors methods. Land use is highly optimised by the vertical stacking of growing levels, pesticides are not required because the crops are grown in an isolated environment and water and fertiliser wastage, and therefore use, is much lower.

Ocado’s interest in the sector is presumably with a view to a future supply system which would see vertically farmed fruits and vegetables delivered to supermarkets for sale within hours of being picked. The ‘extreme density’ that vertical farming operations represent also means that they can be located in proximity to urban centres and their groceries stores, further cutting down harvest to display and sale times.

Ocado’s own take on the opportunity represented by vertical farming was expressed as:

“Tastier and fresher products all year round, picked when ripe and virtually untouched by human hands”.

The first of the two deals Ocado has signed with vertical farming operators is with the Scunthorpe-based Jones Food Company. Ocado has taken a majority 58% stake in the company which vertically farms ‘leafy greens’ and herbs. For now, Jones sells its produce B2B to customers such as FTSE 250-listed food producer Greencore. The company plans to expand both its vertical growing locations across the UK as well as its range of produce.

Ocado also wants to integrate vertical farming facilities into its large tech-centred customer fulfilment centre, or warehouses as well as its new smaller fulfilment centres which it has named ‘Zoom’ facilities.

Tim Steiner, Ocado co-founder and current chief executive commented that the ultimate aim is to:

“co-locate vertical farms within or next to our customer fulfilment centres and Zoom’s micro-fulfilment centres so that we can offer the very freshest and most sustainable produce that could be delivered to a customer’s kitchen within an hour of it being picked”.

The second vertical farming investment, which at this stage is still a ‘memorandum of understanding’ will be in a three-way joint venture with Ohio-based 80 Acres Farm and Priva Holdings, a Dutch provider of industrial systems to the horticulture industry. The JV is to be called Infinite Acres and will design systems to sell to vertical farming clients. Ocado has had considerable success in doing something similar in its own core market. Over the last couple of years, it has signed numerous partnerships with international partners such as Kroger in the USA to sell and/or manage fulfilment centres using Ocado technology and systems.

Within that context, Ocado’s interest in vertical farming looks a comfortable fit with the company’s broader strengths and strategy. Analysts at Numis Securities, Ocado’s joint house broker agreed, noting:

“advancements in robotics and LED lighting are improving the economics within the relatively nascent industry. We see these investments as sensible routes for Ocado to utilise their expertise and engage with associated disruptive technologies.”