Has Ocado boss’s £20BN gamble gone up in smoke?
Tim Steiner wants to make Ocado as big as Tesco – but huge fire puts his M&S deal (and £100m bonus) at risk
OCADO boss Tim Steiner triggered a highly-ambitious plan to triple the value of his food delivery firm only days before its prized robot-run warehouse was engulfed in flames.
The Mail on Sunday can reveal that the plan would see the company’s stock market value soar to almost £20billion – putting it in the same league as corporate titans Rolls-Royce, Tesco and BT.
Steiner, who in recent weeks has held secret talks about launching a new food delivery service for Marks & Spencer, stands to net up to £100 million in bonuses in the next five years if he can deliver such seismic growth.
But details of the scale of his ambitions have come to light following one of the bleakest weeks in Ocado’s history, with the inferno causing its high-tech warehouse in Andover, Hampshire – one of four it owns – to burn to the ground.
Sources said the fire, which raged for several days, could set the company’s domestic plans back by a year or more.
Ocado has been busy in recent days calming the nerves of business partners which include Waitrose, Morrisons and £95billion US supermarket Kroger.
The disruption could hamper any deal with Marks & Spencer as talks reach a critical stage. The negotiations were regarded as the first step in Steiner’s global plan that could see Ocado ditching its 20-year contract with Waitrose.
Ocado’s ambitious growth strategy was outlined in an executive bonus scheme buried in documents released by the FTSE100 company on the same day that the fire broke out.
Steiner will not receive the maximum payout unless the share price roughly triples. Smaller payouts worth millions at a time would be paid if he increases the shares by 10 per cent each year.
The ‘Value Creation Plan’ will see Steiner get a 1 per cent bonus of the value added to Ocado’s share price each year above 10 per cent. There is a cap of £20million per year.
Four other executive directors at the firm – Duncan Tatton-Brown, Luke Jensen, Neill Abrams and Mark Richardson – will each be entitled to up to £25million over five years taking the total payout to £200million.
Last night, fire chiefs were still scouring the wreckage of the burnt-out warehouse to find the cause of the blaze. The investigation will attempt to determine whether the damage was caused by human error or a possible design flaw in the automated factory’s robotic technology or materials.
Any official suggestion of a defect could dent Ocado’s reputation as it seeks to expand overseas.
The fire broke out on Tuesday morning while Ocado bosses were boasting to investors in the City of their company’s world-beating technological prowess.
Hampshire fire service said an initial small fire had taken a ‘dramatic turn’ on Wednesday morning when crews had to be withdrawn. Residents were evacuated to a distance of 500 yards amid fears of explosions or the release of toxic gases. Two hundred firefighters and rescue workers finally managed to extinguish the blaze.
Fire chief Neil Odin said the warehouse, designed around a grid pattern of shifting robots, was ‘not meant for humans’ operating freely so ‘it has been very difficult’ for firefighters to enter and bring the blaze under control.
A spokesman said last night the ‘complex nature’ of the facility had made battling the fire ‘challenging for everyone involved’. He added: ‘There will be a full and thorough investigation into the fire working with the owners to determine the cause and see if any lessons could be learned for the future.’
Fire services in other areas of the country where there are Ocado-run warehouses – including Dordon in Warwickshire – declined to say whether the buildings will be investigated for risks.
One City source said: ‘Everyone has sympathy for Ocado. No one can take away from Tim his achievement building this business. But how the hell did this bring the whole building down? ‘Potential buyers will be asking themselves – insurance or no insurance – what do I do if this happens to me and how do I deliver to my customers in this worst case?’
Ocado says it is insured and insists it can cover orders from spare capacity at
its three other centres. Andover accounts for 10 per cent of its total. But as the smoke clears, the life of Tim Steiner looks very different to how it did just a week ago.
The former Goldman Sachs banker divorced his wife Belinda in 2016 and set up with Polish model Patrycja Pyka. The Mail on Sunday understands he more recently celebrated his new life by secretly splashing out £25million on a 156ft yacht – which he named Silver Fox.
His next bonus, due in May, will almost cover the cost of his oceangoing vessel.
Given his global ambitions for Ocado, the yacht is the perfect place to entertain new business partners and to spend quality time with Pyka. Silver Fox, with interiors by luxury yacht designer Francesco Paszkowski, rolled out of the shipyards of superyacht builder Baglietto in Italy late last year before it caught Steiner’s eye.
It has a pool, a gym and can comfortably accommodate up to 12 guests in five cabins and a crew of eight. The sales literature states that the upper deck ‘is designed for entertaining, placing an elegant alfresco dining table beneath the sundeck overhang’ while the lower deck has ‘a sizeable swim platform which joins on to the beach club to create a sensational sunbathing and entertaining area beside the water’.
It is the ultimate executive bauble for a man who has stuck with his plans through twists and turns, only to watch the culmination of his dream smoulder.
Those who know him say that after building his first fortune delivering Waitrose products, he has been drawn to the dream of rubbing shoulders with the global tech elite – the likes of Amazon’s Jeff Bezos and Facebook’s Mark Zuckerberg.
‘Meetings with Tim now involve discussions about which hypermarket groups buy the blueprint for the robot distribution centres and blue-sky theories about what the next uses for his technology might be – not how many different varieties of tomatoes he sells,’ said one City source.
Investors keen to find the next big thing have been snapping up the shares. Even after last week’s fire sent the stock price diving by 15 per cent before it recovered slightly, it was still just over £9 – almost quadruple the price in 2017 before the flurry of deals that culminated in a landmark contract with Kroger.
The latest on his list of potential new deals – as revealed by The Mail on Sunday last month – is Marks & Spencer. Both M&S and Ocado have refused to disclose details, but what has leaked out betrays Steiner’s wider ambitions.
He has tried to tempt Marks & Spencer chairman Archie Norman to buy Ocado’s physical assets – the warehouses thought to include the now ravaged Andover, the original plant at Hatfield, Hertfordshire, and the giant centre in Erith, South East London, which is three times as big as Andover. There are also more than a dozen mini-warehouses. The deal would allow Steiner to off-load the risk of delivering food for Waitrose and focus his full energies on selling his prized technology.
The mooted deal is understood to include switching Waitrose customers over to M&S – an ambition too far, according to some observers who have argued it is a mission impossible. Sources said, with just 18 days to clinch a deal before clauses in the Waitrose contract restrict talks, the Andover disaster has put the game-changing deal in jeopardy. Bosses at M&S have also struggled for years to fathom the benefits of entering a delivery market where profit margins are thin or non-existent and even Ocado continues to make a loss.
The M&S talks may have further soured the relationship with Waitrose which Ocado has relied on for two decades. Ocado is understood to be talking to other retailers but observers say the further it gets from its middle class heartland shopper, the harder it would be to switch them to another brand.
Steiner’s sometimes prickly personality is well known and he has clashed with Waitrose bosses in the past when one round of negotiations spilled into an unseemly public spat. One retail industry source said: ‘Ocado is one of the great entrepreneurial success stories of the last 25 years. But the M&S deal is on a knife edge here and it could go either way.
‘If that falls through Tim will have to go back to Waitrose and face another five years of a relationship which has barely managed to pass toleration for more than a decade.’
It is understood there is the possibility of a watered down version of the M&S deal using Ocado’s new city centre Zoom service which carries smaller bags of shopping. M&S shoppers tend to buy less than supermarket shoppers – a fact often repeated by Marks & Spencer chief executive Steve Rowe.
It is less than a year since the company revealed Steiner was in line for bonuses of £110million through stock options and cash. This included an £80million longterm bonus set up before the company listed nine years ago.
Ocado has been criticised previously by investors and shareholder advisory groups for failing to provide enough information about targets for bonuses. The company has admitted this was a problem. It said in its latest annual report that it hopes to address ‘the flaws that underlie the long-term [bonus] plans used historically’.
The baseline for the new bonus scheme will be taken from the average share price for April, the month leading up to the firm’s next shareholder meeting when investors will have the opportunity to vote on the plan.
Other changes mean chairman and former M&S boss, Lord Stuart Rose, is no longer barred from selling shares he holds worth £6.8million. The annual report lays out how the scheme would work. If Steiner boosted the share price from a baseline of £8.50 to £17, the additional value would be £5.9 billion, meaning he would get £55million.
The M&S deal is on a knife edge here... and it could go either way