Ocado rocked as analysts praise new rival Amazon’s efficiency
ONLINE grocer Ocado has come under fresh scrutiny in the wake of Amazon’s $10.7bn (£8.3bn) swoop on Whole Foods.
Analysts at Deutsche Bank have published a bearish 68-page note disparaging Ocado’s growth potential following renewed speculation about how the UK grocery market could be shaken-up by Amazon’s move into physical food retailing. The German bank’s analysts have questioned the online grocer’s business model, which relies on a handful of distribution warehouses, sometimes referred to as dark stores, and fleets of vans and lorries to deliver food orders to customers.
“We conclude that after 15 years of operations, we do not believe that its automated picking model exhibits a cost advantage in fulfilment versus store based retailers,” Niamh Mcsherry, analyst at Deutsche Bank said.
Shares in Ocado fell by as much as 1.8pc on the back of the note before recovering to 304.8p, down 1.6pc on the day. Ms Mcsherry added that Amazon’s takeover of Whole Foods, which has 460 shops across the US, Canada and the UK, “suggests that even Amazon has concluded that an existing supply chain, built around a store network of scale, is a more efficient way to fulfil and deliver online grocery orders than building a new network of dedicated warehouses”.
Only around 7pc of the UK grocery market is online and there are mixed views on whether the growth is plateauing or has further potential. Citi analysts earlier this week argued in favour of Ocado’s model and said its tech-enabled distribution centres meant that it has “the lowest-cost operating model in online grocery”.
They added that Amazon’s Whole Foods tie-up would prompt a number of supermarkets to reconsider their online offer, which could lead to further partnerships.
Ocado floated in a £937m stock market listing in 2010 but only turned its first pre-tax profit in 2015. Since then investors in the company, which has contracts with Waitrose and Morrisons, have been disappointed by its failure to license its automated warehouse technology to a major international retailer.