Steiner’s vans aren’t flying yet

 
Elizabeth Fournier

OCADO has long talked big and looked the part, but until recently it remained a stock market ugly duckling.

As recently as last October, its shares were languishing at a pitiful 58p – less than a third of its 2010 float price of 180p – as fears grew over its ability to meet distribution demands. But fast-forward eight months and the delivery firm’s woes seem like a distant memory.

Shares have risen an astonishing 250 per cent or so this year alone, making yesterday’s dip all but irrelevant.

But are investors right to be piling in with such enthusiasm?

Ocado certainly seems to be extricating itself from its relationship with long-term partner Waitrose with aplomb, and even a potential row over its new contract with Morrisons looks to have died down.

Its reliance on Waitrose own-label products is on a steady decline, accounting for just 37.4 per cent of gross sales in 2012 and 35.2 per cent in the first half of this year, while Ocado’s own free-from range and specialist American lines have grown annual sales by 150 per cent and 40 per cent respectively.

But changing strategy doesn’t come cheap, and the cost of the Morrisons deal – plus opening two new distribution centres – has helped keep Ocado from announcing a maiden profit yet again. There’s no doubt that some aspect of the Ocado service are outstanding – customer service in particular – but chief executive Tim Steiner is up against some serious rivals and there are still distribution concerns, with some analysts worried that Morrison’s core customer base in the north will be ill served by Warwick and Hatfield warehouses.

Ocado’s days as the market’s ugly duckling may be over, but its management must still do more to prove its got the wings to match its new-found high-flying status.