News Article

How do you solve a problem like Ocado?

Richard Curry

Richard Curry

Partner – Commercial

1st Aug 2023

Published by The Grocer, 26 July 2023

By Richard Curry, Head of Retail at Rapleys

It was the hybrid tech/retail business that promised the world to investors and the retail industry. Transformative, progressive, disruptive – all the posit-ive words you can imagine.

But in its 23 years of operation, Ocado is yet to turn a profit. Every financial update is full of promises not performances or as I like to call it, ‘full of jam tomorrow’.

So why is it valued such that it has, in its own words, ‘shot up the FTSE’? Its current market cap stands at $6.27 Billion. This makes Ocado the world’s 2134th most valuable company by market cap. Over the years its peak was $29bn. From a company that has never turned a profit!

The group has done really well at signing overseas deals with food groups, that’s clear. The share price reflects this and the promises and, of course, a hope that it will come good and get close again to the peak heights several times of what it is valued at today.

Yet earlier this year it announced losses of £500m citing a slowdown in retail operations, rising costs, difficulties in the supply chain and food inflation and one-off charges.

The year prior it also stated a return to pre-Covid buying behaviour post Covid.

What about the other 22 years? The point of this article isn’t to bash Ocado by the way. I genuinely think it’s a remarkable idea with some very talented people and IP.  But the future promises are wearing thin even if its backers are resolute.

That said, every year that passes takeover rumours abound. The latest ones are a recycling of past Amazon rumours. But at its current ‘valuation’ I cannot see a takeover with any business currently. Perhaps if the valuation was more realistic it could be a match for someone.

It’s partnered with a number of retail brands previously but they’ve all seen ‘something’ that doesn’t work for them and the partnership has been broken. I was asked last week if M&S should buy Ocado given that partnership seems to be working better than prior ones. My answer is no – because if M&S benefit from the partnership that can be broken, why buy into it and risk its current successful strategy.

In my view, Ocado is seen as the middle-class brand of the home counties that’s reassuringly expensive. While it will never be a value brand in the purest sense of the word, it could do with a new comms campaign that reaches a wider audience and shows its eco credential, standard of food and value for money.

Either way, clearly Ocado remains popular with its backers who have remained faithful for decades, otherwise we’d be listening to talks of administration, not acquisition. There’s also something about Ocado that keeps retailers looking at it.  Perhaps a mix of its innovation, intellectual property, tech platform and overseas deals.

Whatever it is, I hope it’s more than its promise and that it works out how to translate it into profit and performance, fast.

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