[ad_1]
January will mark 20 years since three former Goldman Sachs bankers with no experience of food retailing hatched a plan for an online grocer.
The company started off as Last Mile Solutions and soon changed its name to Ocado. The rest is history – but a bumpy one. Ocado has fallen in and out of favour since its flotation in 2010 as investors have waited for Tim Steiner, its chief executive and the last of the trio remaining, to make good on his pledge to revolutionise food shopping.
As it prepares to publish a trading update on Tuesday, Ocado has made an annual profit on only three occasions; it lost £44.4m last year. Its share of the UK grocery market is a niche 1.4%, made up largely of middle-class shoppers. Yet it is on a high at the moment: the share price hit a record £14.40 in April and is not far off that peak now.
There are two reasons for investors’ enthusiasm. Ocado signed a deal in February to sell 50% of its retail division to Marks & Spencer. The joint venture is meant to end M&S’s struggle to sell food online by letting it use Ocado’s technology and delivery network.
M&S’s upfront payment of £562.5m also gave Ocado plenty of money to spend on shifting from the low-margin business of selling groceries to become a technology platform. The idea is that retailers pay for Ocado’s robots, algorithms and other innovations and avoid the cost and bother of developing their own.
Ocado says no other company can equip retailers to serve customers right from the online purchase to the van arriving at their home. It has signed eight “solutions” deals in Europe, Australia and North America, including an agreement to operate 20 automated warehouses for Kroger, the US’s biggest supermarket chain.
To Ocado’s 745,000 UK customers it remains a grocer delivering quinoa in one-hour slots but that business now plays second fiddle. Tuesday’s trading statement will stick to reporting figures for the retail business, but investors will want to know how the solutions arm is going. They may also want further reassurance about the impact of a fire that destroyed Ocado’s flagship warehouse in Andover, Hampshire, in February.
At £9.3bn, Ocado’s market value is more than double that of M&S – and some analysts think investors are banking on returns that may not materialise. Ian Hunter at Investec says: “While there is undoubted value in the division’s robotic systems and their rollout … with a range of partners in different geographies, we believe the market is pricing in too ambitious a rollout programme.”
The deal to deliver M&S food from next year also requires households to switch their allegiance from Waitrose, which has supplied products for Ocado since the beginning. Waitrose inspires plenty of loyalty, and a survey of Ocado customers in March found that more than a fifth said they would ditch an Ocado with no Waitrose.
With solutions projects on three continents and more in the pipeline, Ocado admits it has a lot on its plate. It also acknowledges that some Waitrose devotees will probably leave when M&S takes over at the retail division.
Ocado has promised to replicate every Waitrose product with a version from M&S or somewhere else, and it reckons that M&S’s 7,500 food products – almost double the number provided by Waitrose – will attract new customers.
Expect Waitrose to fight back, though. Ocado may be transforming itself, but a bloody battle for buyers of prosecco and sourdough could still inflict damage.
[ad_2]
READ SOURCE
