Ocado is basking in Amazon’s glory. Yesterday, its shares rose by 11 per cent as investors banked on it being the next network to be gobbled up by a ravenous Jeff Bezos.
According to veteran retail analyst Nick Bubb, hopes are also high that Amazon’s $13.7bn move on Whole Foods last week could mean US grocery chains decide to use Ocado’s technology platform in a bid to compete with the online behemoth. So is Ocado up to delivering?
Firstly, it is worth pointing out that there are two main parts to Ocado: the online supermarket that stocks and delivers Waitrose and Ocado goods and has number three market share online in UK.
Then there is what is known as the “Ocado smart platform”. This technology comprises the customer interface, the hardware behind it, mechanical handling of goods and to-door delivery. It is currently used by Morrisons only.
Activist investor Crystal Amber, which recently bought a 0.5 per cent stake in Ocado, is said to want it to rebrand primarily as a technology business. Ocado itself does not appear to disagree with this aim in the long-term and is marketing its platform to international retailers in the belief that this is where future growth lies.
Some analysts do not buy the tech company argument, however. Instead they see value in the retailing operation which currently distributes to 70 per cent of the UK. In Bubb’s view, after its fourth distribution centre opens next year, Ocado’s fulfilment costs will be “unbeatable”. Sources close to the company say the new operation will be slick and able to complete its tasks in minutes.
While Ocado serves up most of its revenues from retail, it will remain classified as a retailer. Earlier this month, it announced its maiden international tech tie up with an unnamed European regional retailer. But this only allows the new partner to use its software.
To be a credible technology firm to investors, Ocado needs to bag some truly groundbreaking deals. And this must be sooner rather than later as competition mounts in the food delivery industry, not least because of Amazon.
Otherwise, the UK retailer’s share price, up 32 per cent year-on-year, could eventually fail to satisfy.