Ocado Fairy Tale: The Sequel.

John Ibbotson

John Ibbotson / 14th March 2017

Ocado’s latest figures knock the doomsayers off their perches, but its not all good news, there are still things to remember like the expensive technology they are yet to pay off. Here are my thoughts:

“The Ocado fairy tale has extended into a sequel, if not yet a happy ending.

“The brand continues to defy the doomsayers by steadily growing both sales and the number of orders, even if the average order size is shrinking.

“Yet despite the outward success, the brand is still haunted by the ‘c word’ – cost.

ocado van

“Ocado’s vast customer fulfilment centres (CFCs) bristle with expensive technology that was developed in-house and which has yet to be fully paid for.

“By contrast Ocado’s rivals run their online offerings from low-cost warehouses using low-paid humans rather than glitzy fruit-picking robots.

“With Ocado paying more to fulfil each order, even as its average order size shrinks, the cost squeeze is increasing; leading even an impartial observer to ask, if Tesco can’t make online grocery pay with its lower cost model then how can Ocado?

“Ocado has achieved much. It is no mean feat to increase both sales and volumes in the current environment, and its technology remains a huge asset.

“But its revenues from selling groceries aren’t growing nearly fast enough to recoup its astronomical set-up costs.

“With a growing debt mountain, its greatest hope lies in finding a buyer for its technology.

“Ocado has always been a schizophrenic company – part grocery retailer, part technology company – and this internal conflict will soon become untenable unless it can woo a retail giant into stumping up to use its tech.

“That search for a suitor has so far proved fruitless, which takes the shine off what would otherwise be an impressive set of sales figures.”

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email: john.ibbotson@retail-vision.co.uk

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