Monday Manifesto: Jason Gissing Believes Ocado Will Be Boosted By Lifestyle Trends

Cast your mind back to 2000. Billie Piper had her last No 1 single, Kevin Keegan was taking England to the European football championship and Wal-Mart, the biggest retailer in the world, had just bought Asda.

It was at this time that three Goldman Sachs bankers decided to quit their lucrative jobs in the City and sell food over the internet.

Their business, Ocado, was written off almost as soon as it began. It has been dismissed as a charity by Sir Terry Leahy, the chief executive of Tesco, and has run up losses of £300 million in eight years.

Jason Gissing, the former banker turned Ocado marketing and finance director, has heard all the criticism before. He soaks it up, smiles and says that it is not a problem.

Mr Gissing believes that Ocado has more than proved itself, and he is ready to shout about it.

“I have a vision that one day well drop the Ocado name and just have the logo,” he says. “If Nike can do it with a swoosh, we can do it with a swirl.”

For all the criticism, Ocado today delivers Waitrose food and drink to up to one million customers.

It has about half of the grocery home shopping market in London - including a highly confidential list of celebrities, politicians and footballers - and nearly 20 per cent in the other towns and cities to which it delivers.

The business started generating a profit on a daily basis in November and its annual sales are nudging £350 million.

While the likes of Tesco decided that it was more efficient to pick orders for internet customers from its existing stores, Ocado spent a fortune building a dedicated warehouse the size of ten football pitches at Hatfield, Hertfordshire.

Here, 12,000 plastic crates are sent round conveyor belts by a computerised system every day, stopping only at stations where a panel flashes and tells staff to put in a ready meal or some toilet rolls. All is programmed so that a crate ends up at the customers house within a one-hour delivery window.

Tesco dismissed the idea as business suicide, yet Mr Gissing points out that Britains biggest supermarket group seems to be following suit.

“Go back to what Tesco was saying four or five years ago. They were saying: Building a warehouse to deliver food? You cannot make money from that. But what are they doing today? Theyre building dot-com-only stores. What is a dot-com-only store? Its a warehouse.

“As far as Im concerned, Tesco is the best-run business in this country, but I get the feeling they know that this - what we have here - is the way to do home shopping.

“They have focused on us so much and we are tiny in comparison to them. Why would they devote so much time and energy to talk about a business like ours if there werent something in it? Ive got to think we are on to something.”

The feeling grows with each and every tale that Mr Gissing hears about rivals approaching suppliers to ask about Ocados jealously guarded warehouse system.

An engineer, who worked on developing a conveyor belt at Hatfield, was asked last week whether he would do the same job for a leading supermarket.

At least two foreign retailers, which originally competed with Waitrose to be the Ocado food supplier in the UK, want the team to build a similar operation for them abroad.

Mr Gissing says: “We imagined this would take less time and cost less money, but we think we have built something which is radically different.

“The fact it has cost more and taken longer in a way gives us greater comfort as we know how hard it is to make it work. We have built the first new supermarket retailing brand in this country for two or three generations and we have done it in a way that no one has ever done.”

He adds: “This market will really grow when everyone can achieve the same service levels we have. It will take them five years to get to where we are. You have pickers in a Tesco store fighting with customers to get to the shelf.”

Mr Gissing has not always been so sure about Ocado. When first told by his business partners, Tim Steiner and Jonathan Faiman, about their plans, he told them: “You must be out your minds.”

The three then managed to persuade the two directors running Marks & Spencers food division to join them to advise on the grocery trade.

The John Lewis Partnership, parent of Waitrose, became a shareholder, alongside Jorn Rausing, the Tetra Pak billionaire, UBS, the investment bank, and their former employer, Goldman Sachs.

Mr Gissing says: “I could see the potential, both economically, but also the potential to disrupt an established industry. Then again, Tim and Jon are so talented that if they had asked me to open a fish shop in Notting Hill, I might well have.”

Ocados potential, he argues, has never been greater, given the technological, demographic and lifestyle trends in society.

Mr Gissing heads off into a dream world when asked to describe what shopping patterns will be like in 2012, imagining bar-code readers in fridges that give warning when food is near its sell-by date, and voice recognition software that will enable someone to call Ocado and say: “Same order, two more pints of milk, extra bread, 7am.”

Crucially, he says, the shoppers of tomorrow will be the younger generation who today spend hours surfing MySpace or YouTube and sending texts by the hundred. “They are going to use the internet to buy their food,” Mr Gissing says.

He adds: “The next five years will see a massive change in our corner of the market.

“Online currently represents around 2 to 3 per cent of the grocery market. By 2012, the IGD believes 12 per cent of people will only shop online for groceries, and 60 per cent have said they will use online, not exclusively, but they will use it.

“The grocery market is £120 billion and if you think about predictions that online will be 10 to 15 per cent, then that means a £10 billion market, with just three to four players, which is exciting.”

Then there is the environmental debate, one that is close to Mr Gissings heart, given the influence of his late father-in-law, Arne Naess, the famous Norwegian environmentalist who “was laying under trucks protesting in the 1970s, when it wasnt fashionable to”.

Ocados present advertising asks: “Why waste time going to a supermarket?” Mr Gissing adds that there is also an environmental benefit in lining Ocados pockets rather than those of the likes of Tesco or JSainsbury.

He says: “As people become more environmentally aware, they are going to start to understand that if you build a warehouse in an industrial space, away from city centres, if you dont have stores that have big open chillers but still need heating because customers are walking in, and you have a fleet of cars that keeps ten to 20 cars off the road, then, as a business, youre going to have less environmental impact than a supermarket.”

He adds that Ocado is doing all that it can to reduce the number of plastic bags sent out with every order, despite endless stories of how home shoppers typically receive two dozen with their frozen ice-cream, washing powder and merlot.

Ocado, he insists, takes back all the plastic bags handed out and recycles every one. “We have a closed loop,” he says. It has also run trials with paper bags and corn-starch bags.

Mr Gissing refuses to be drawn on the Governments potential plastic bag levy, but he is not the greatest fan of the Chancellor, despite Alistair Darling having been pictured receiving an Ocado delivery before the Budget last month.

Two months ago, Mr Gissing criticised Mr Darlings crackdown on non-doms and said that with the increase in capital gains tax, businesses could no longer trust the Government.

He says: “The Government is stifling enterprise and affecting the very people they tried to build a relationship with. Its out-and-out poor judgment.”

Mr Gissing is far less forthcoming about the perennial Ocado question - when the business may be floated on the stock market. Speculation rose when Michael Grade became its chairman two years ago and Ocado appointed Goldman Sachs as financial adviser.

Mr Gissing signals that analysts expecting a move this year may be disappointed. “It is something we discuss between us, but its not on the agenda right now,” he says.

“Besides, the thing about a float is when you float a company, you have to tell the world how you do it.

“I dont think we really want to tell the world how we do it just yet.”

CV

Born: October 25, 1970

Education: Oundle School; Worcester College, Oxford

Career: Joined Goldman Sachs in corporate finance in London, 1992. Bond trader from 1994. In a trading team with his Ocado partners, Tim Steiner and Jon Faiman, until 2000

Family: Married to Katinka, with a son and a daughter

Other interests: Tennis, skiing, football, yoga, reading

Q&A

If you could change one thing in the financial and commercial environment, what would it be? The Chancellor of the Exchequer

Who is or was your mentor? My entrepreneurial parents for their love and inspiration and my late father-in-law, Arne Naess, for showing me how to live life to the full

Does money motivate you? Yes

What is the most important event of your working life? Starting Ocado in a single-roomed office in Victoria in January 2000

What gadget must you have? An electric sports car

What does leadership mean to you? Doing what my wife tells me to do ... and keeping hold of a vision that can unite people in good times and bad

Which business person do you most admire? My partners, Tim Steiner and Jon Faiman - for having the courage to make Ocado a success and the vision to take me along for the ride

How do you relax? Hiding from the world in a chalet in the mountains, where I ski, walk and have long saunas

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