# Why FTSE 100 retailers are abandoning enterprise SaaS for custom AI
> Retail · By Adam Hadley · 2026-03-26
Off-the-shelf retail analytics is reaching the limits of what it can do for category leaders. Custom AI is starting to win, and the economics make sense.
## A £517 billion market outgrowing generic AI
UK retail sales were worth £517 billion in 2024, with volumes up a further 1.3 per cent through 2025 according to the ONS. Gartner expects retail AI software spend to rise from $7.8 billion in 2024 to $12.5 billion by 2027. Yet the FTSE 100 retailers we work with are quietly pulling budget out of enterprise SaaS and redirecting it into small engineering teams building on foundation models. The pitch from Oracle, SAP and Blue Yonder has not changed. The economics underneath it have.
## The off-the-shelf ceiling
For most of the last decade, enterprise SaaS was the obvious answer. Oracle, SAP and Blue Yonder sold pricing, forecasting, inventory and merchandising as bundles: best-practice baked in, vendor support, predictable cost. It was the right call, because the vendor systems were better than what retailers could build themselves.
That has changed. Gartner Peer Insights reviews of Blue Yonder and SAP flag a consistent pattern: long implementations, steep learning curves, and a need for "internal superusers or expensive integrators" to configure anything beyond defaults. This is what happens when a multi-tenant platform built for thousands of customers meets the edge cases of a category leader.
## What we hear from category leaders
The off-the-shelf systems work for the average problem. Category-defining retailers do not have average problems. They have edge cases the vendor will not prioritise, integrations that take twelve months and millions to deliver, and a roadmap they do not control. The pricing engine recommends a price that is technically optimal but breaks the brand promise. The forecasting model is trained on retailers who do not look like you, and the vendor will not retrain on your data because it would break other customers. Good enough for everyone is not good enough for you.
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## What the UK's biggest retailers are actually doing
**Ocado** has moved in-house. Its On-Grid Robotic Pick system combines computer vision, deep reinforcement learning and "fleet learning", where data from every robot updates the entire estate. It picked more than 30 million items with the system in 2024. You do not buy that from Blue Yonder.
**Marks & Spencer** has committed £200 to £250 million to technology in FY2025-26, builds in-house recommendation models, acquired Thread for its personalisation algorithms, and uses generative AI to write roughly 80 per cent of its product descriptions.
**Tesco** signed a three-year agreement with Mistral AI in 2025 giving it full access to Mistral's models and engineers, plus a joint lab to co-build forecasting copilots and Clubcard personalisation.
**Sainsbury's** still runs Blue Yonder for core supply chain, but credits in-house machine learning forecasting with a 190 basis point improvement in food availability over four years, the biggest availability satisfaction gain of any major UK grocer.
**JD Sports** announced it will be the first retailer to use commercetools and Stripe's Agentic Commerce Suite to sell directly through ChatGPT, Copilot and Gemini.
Commodity workloads stay with vendors. Margin-critical workloads come in-house.
## Why custom is now economically viable
**Foundation models have collapsed in price.** GPT-4 launched in March 2023 at roughly $30 per million input tokens. GPT-4o mini, released in July 2024, costs $0.15. A 99 per cent reduction in eighteen months. Five years ago, a custom forecasting model needed data scientists and six months of feature engineering. Today a small team ships it in weeks.
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**Cloud infrastructure is cheap and fast.** A production-grade pipeline on AWS or Azure can be live in days, not quarters. **The right small team beats the wrong large team.** A focused four to six person team that understands the business out-delivers a thirty-person SI team at a fraction of the cost.
The upside is material. McKinsey estimates generative AI could unlock $240 to $390 billion of value in retail, a 1.2 to 1.9 percentage point margin uplift. McKinsey and BCG put AI-powered dynamic pricing at a 2 to 5 per cent revenue lift and 5 to 10 per cent margin improvement. For a £10 billion retailer, that is £50 to £100 million a year on pricing alone.
## What the transition looks like
This is not rip-and-replace. Retailers keep the off-the-shelf platform for the 80 per cent it handles well and build custom layers for the 20 per cent that drives most of the margin. Custom pricing for the top 200 SKUs. Custom range optimisation for flagship stores. Custom margin dashboards on top of the vendor's warehouse. Fast, focused, owned by the retailer. This is what we recommend to any retailer hitting the off-the-shelf ceiling.
## Sources
- ONS, Retail Sales Great Britain, December 2025: https://www.ons.gov.uk/businessindustryandtrade/retailindustry/bulletins/retailsales/december2025
- Gartner, AI Software in Retail Market Forecast 2023-2027: https://www.gartner.com/en/documents/5372363
- McKinsey, Generative AI in retail: LLM to ROI: https://www.mckinsey.com/industries/retail/our-insights/llm-to-roi-how-to-scale-gen-ai-in-retail
- BCG, Overcoming Retail Complexity with AI-Powered Pricing, 2024: https://www.bcg.com/publications/2024/overcoming-retail-complexity-with-ai-powered-pricing
- Ocado Group, Forecasting the future: https://www.ocadogroup.com/newsroom/stories/forecasting-the-future
- Marks & Spencer Corporate Newsroom: https://corporate.marksandspencer.com/newsroom/blog/launching-worlds-first-data-science-ai-academy-retail
- AI News, Tesco signs three-year AI deal: https://www.artificialintelligence-news.com/news/tesco-signs-three-year-ai-deal-centred-on-customer-experience/
- J Sainsbury plc, Annual Report 2025: https://corporate.sainsburys.co.uk/media/inmewja1/sainsbury-annual-report-and-financial-statements-2025-strategy-overview.pdf
- JD Sports press release, AI platform purchases: https://www.jdplc.com/media/media-details/2026/JD-deploys-cutting-edge-technology-to-enable-direct-purchases-through-AI-platforms/default.aspx
- OpenAI, GPT-4o mini announcement: https://openai.com/index/gpt-4o-mini-advancing-cost-efficient-intelligence/
- Gartner Peer Insights, Blue Yonder vs SAP: https://www.gartner.com/reviews/market/warehouse-management-systems/compare/blue-yonder-vs-sap
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