Ocado, the online grocery specialist, has announced significant job cuts as part of its efforts to reduce costs and improve efficiency through artificial intelligence (AI). The company, which employs approximately 20,000 people, will cut 500 roles across its technology and finance divisions. This follows a previous reduction of 1,000 jobs in the last financial year.
AI-Driven Productivity Gains
Ocado’s technology group, which develops robotic picking and delivery tools for online retailers worldwide, has increasingly integrated AI into its research and engineering processes. CEO Tim Steiner stated that AI has significantly improved the productivity of its engineering teams, allowing the company to operate with a leaner workforce.
“We are taking advantage of AI-type tools that drive up the productivity of our engineering teams and are spending less going forward on research and development,” Steiner said. While the company continues to expand its robot-led technology for clients such as Kroger in the US and Casino in France, much of its current development focus is on software, which requires fewer employees.
AI’s Impact on Warehouse Operations
AI has also enhanced the efficiency of Ocado’s robotic warehouse operations. In its most advanced facility in Luton, over a third of individual items are now picked robotically, with expectations to increase this figure to 70% in the near future. This shift enables Ocado to minimize the need for new hires even as sales continue to grow.
However, despite these advancements, shares in Ocado fell by 17% following the company’s projection that technology sales would grow by only 10% this year, down from 18% last year. This decline is attributed to delays in launching two new warehouses for its US partner, Kroger, due to the addition of further technology.
Financial Performance and Market Strategy
Ocado reported a pre-tax loss of £374.5 million for the year ending December 1, a slight improvement from the previous year’s loss of £394 million. Although sales increased by 14% to £3.1 billion, gains in profitability from technology and retail were counterbalanced by costs associated with writing down outdated equipment.
One of the most notable financial setbacks was the complete write-off of a final payment from the sale of a stake in its retail business to Marks & Spencer (M&S). Ocado originally expected to receive £190 million from this deal, but the final £29.1 million was removed from its balance sheet. Negotiations with M&S are ongoing, with Ocado previously threatening legal action over unmet performance targets. The company has already spent £1.3 million on specialists to argue for target adjustments.
Expansion Plans and US Market Strategy
Despite recent challenges, Ocado remains focused on expanding its technological footprint. The US is a critical market for the company, particularly through its partnership with Kroger. Steiner assured that the two new Kroger warehouses would not be affected by potential tariff changes, as nearly all required equipment has already been imported.
However, if long-term tariffs were imposed on importing Ocado’s technology to the US, the company has considered shifting production across the Atlantic. Steiner emphasized a cautious approach, stating that Ocado did “not want to rush around making changes” in a fluid situation regarding trade policies.
Job Cuts in the Grocery Sector
Ocado’s job reductions align with a broader trend of downsizing across the grocery industry. Aldi has begun consultations on restructuring its head office, potentially impacting up to 350 finance and buying roles. The company assured that no customer-facing jobs would be affected.
Other major grocery chains have also announced layoffs. Sainsbury’s is cutting 3,000 jobs following the closure of hot food counters and in-house cafes. Meanwhile, Tesco is reducing its workforce by 400 positions across its head office and stores.
Ocado’s job cuts highlight the growing impact of AI in reshaping the workforce. While AI has helped streamline operations and reduce costs, it has also led to significant job losses. The company continues to focus on expanding its technological capabilities and global reach, particularly in the US. However, market challenges, including slower-than-expected technology sales growth and financial write-offs, remain key concerns for investors and stakeholders. As AI-driven automation becomes increasingly prevalent, Ocado and other industry players must balance innovation with workforce sustainability.