Ocado feels it’s time to spread its wings
OCADO’S tie-up with supermarket chain Morrisons last week has thrust the online grocer’s co-founder and chief executive Tim Steiner very firmly into the eye of a storm.
After a turbulent three years as a public company trying to prove to frustrated investors it can deliver a profitable internet service, the banker-turned-entrepreneur struck a pivotal deal that should produce exactly what he wants, more scale and revenues.
But while the 25-year agreement may have gone some way to appeasing the City it has also landed Steiner in the middle of an extremely delicate situation with Waitrose, the company that until now has supplied him with the bulk of Ocado’s revenues.
There is a hullabaloo going on, with Waitrose feeling Ocado has compromised its relationship by forging a potentially competitive alliance with Morrisons – and Steiner is keen to sort things out.
The upmarket chain’s chief executive Mark Price has instructed lawyers to study the agreement between the two, warning that it could represent a breach of contract.
But speaking on Tuesday after the British Retail Consortium (BRC) annual lecture Tim Steiner told City A.M. that the tie-up was not in breach of their agreement and described the reaction to it as “a joke”.
Price has refused to meet with him, despite numerous texts and emails sent, Steiner said. He said Waitrose viewed its relationship with Ocado as akin to that of a parent and child.
“Some companies need to be the dominant player,” he said. “We have gone from being a toddler to an unruly teenager. But now we are an adult...sometimes the parent doesn’t like it when the child grows up.”
Ocado’s sourcing agreement with Waitrose, which denies being unresponsive, is due to run until 2020 but there is a break clause that could be exercised in 2017.
Like the adult that it now is, Ocado has been steadily weaning itself from its parent, with 20 per cent of sales now generated through its own label goods. But even now with Morrisons in tow analysts have warned that a breakdown of a relationship with Waitrose would be damaging for the business.
Shore Capital analyst Clive Black has said the ties “would be difficult to repair” and could result in Waitrose becoming “a more formidable competitor than it already is”.
Steiner declined to comment on the prospect of the John Lewis-owned chain severing its ties. But he claimed the deal “would benefit” Waitrose because it would allow Ocado to grow and in turn sell more Waitrose products.
“It will make us a stronger business that can invest more money in our platform and maintain – or even grow – our advantage over the competition,” he said.
Speaking to an audience of industry leaders at the annual BRC lecture on Wednesday, Steiner described other ways in which Ocado had grown up.
He described how it had been transformed from being an online grocer to an internet services company, with a strong intellectual property platform that was now a business in its own right.
As Steiner shared his vision of the future with an audience of retail specialists, he was painfully aware that across town Waitrose and Price were hosting a glitzy party in Kensington to which he had not been invited.
“It’s the fourth time in a row I haven’t been invited,” he said, adding: “and we’re their largest customer”.
It remains to be seen whether Ocado’s current tiff with Waitrose blows over.
Most teenagers make things up with their parents in the end. But then there’s always the odd one that leaves in a huff and never really returns to the fold.
CV TIM STEINER
Steiner is a founding director of Ocado, alongside Jonathan Faiman and Jason Gissing.
He has responsibility for keeping a general oversight of the business and strategy.
Prior to Ocado, Steiner spent eight years as a banker at Goldman Sachs where he worked with Faiman and Gissing.
When the company first started the trio ran every aspect of the business themselves.
During his time at Goldman, Steiner was based in London, Hong Kong and New York in the Fixed Income division.
Steiner graduated from Manchester University with an honours degree in economics, finance and accountancy in 1992.