Pricey Ocado is going to be crushed by Aldi and Lidl

The company is raising another £575m and expanding at a time when the shine has come off online supermarkets

In the food delivery game, timing is everything. So hats off to Ocado for pressing the button on yet another blockbuster cash call at precisely the moment that most people seem likely to cancel their online grocery subscription.

In a world where the cost of living squeeze is now front and centre of everyone’s minds, are families still going to be forking out for the privilege of having their weekly shop brought to their doorstep? With British consumers facing the steepest increase in food bills in 13 years, it seems highly improbable.

Far more likely is that German discount kings Aldi and Lidl will continue to gobble up market share as households downgrade to cheaper items in a desperate bid to save money.

However, Ocado has gone cap in hand to shareholders for the umpteenth time, seemingly on the basis that the online food shopping market is on the cusp of a miraculous explosion across the Western world. It’s the same line that chief Tim Steiner has always parroted – and yet this fabled boom continues to remain glaringly elusive.

Even the pandemic proved to be a false dawn. Industry leaders, including those at the helm of the traditional supermarkets, were quick to hail a permanent shift in shopping trends as coronavirus swept through the population. But old habits die hard and shoppers flocked back to the local supermarket once they’d been freed from the purgatory of lockdown.

The £575m it has raised will be used to fund the expansion of its tech arm, which provides Ocado’s whizzy warehouse machinery to overseas rivals looking to ramp up their web-based operations. It has also secured a new £300m banking facility, taking the amount raised since the outbreak of Covid alone to nearly £2bn and prompting a debt downgrade from ratings agency Fitch.

Ocado not only argues that “the shift to online grocery accelerated significantly with the Covid-19 pandemic” but that “industry data suggests that this change will continue, as customers continue to demand greater convenience for their online shopping”.

But where is this surging demand? Certainly not in the UK, if the other half of Ocado is anything to go by – you know, the bit that actually sells online groceries. Now an appropriately talked-up joint venture with Marks & Spencer, a slowdown at the food wing was partly to blame for a shock profit warning at Ocado last month, which came hot on the heels of a downgrade to forecasts in February.

The latest revision saw growth targets pared back steeply from 10pc previously to the low single digits after a fall in sales over the intervening weeks. The company admitted that shoppers were buying less to cope with squeezed budgets and surging prices.

Customers were ordering “one or two fewer items per shop”; the value of the average basket was 9pc lower than a year ago; and growth of new customers had slowed too, management said, trends that are surely destined to continue.

Investors certainly aren’t betting on a golden era for the digital retail titans. Ocado shares have halved this year and at 855p, the share price has crashed 70pc from pandemic highs of more than £28 in September 2020 when the company was worth £15bn, more than Sainsbury’s, Morrisons and Marks & Spencer combined.

Nor do the latest industry data point to bountiful times ahead for a home shopping outfit that hardly has a reputation for thrift.

Consumers are grappling with the sharpest jump in food prices since the banking crash, exacerbating the crunch on household finances. Grocery price inflation climbed to 8.3pc in the four weeks to June 12 – a shocking spike from 7pc the previous month and the highest level since April 2009, according to figures from Kantar.

The data provider has calculated that annual grocery bills will jump by £380 this year, over £100 more than the number it reported in April. That is a huge shock for a typical family that is already having to juggle a sudden leap in mortgage costs, soaring energy bills and record fuel prices.

With every new set of figures, a clearer picture is emerging of who the winners and losers are likely to be in price-pinched Britain as shoppers downgrade from branded goods to cheaper own-label products in greater numbers.

Lidl was once again the fastest growing grocer – sales climbed 9.5pc over the 12 weeks to June 10. At Aldi, turnover rose by 7.9pc, compared with an industry-wide slump of 1.9pc. Ocado fared even worse than that with a fall of 2.3pc as online registered its lowest proportion of the market since May 2020 at 12pc. After a drop of almost 9pc in June, digital orders have now declined 12 months in a row.

With this latest fundraising, Ocado is clearly pinning its hopes on overseas growth where online penetration is lower. One in five British households place an order each month, the highest proportion in Europe, says Kantar.

Yet, consumers are battling the same forces everywhere to a lesser or greater degree, so it’s a risky bet and it doesn’t change the economics of Ocado’s capital-intensive model, which means it has an unfortunate reputation for racking up significant losses. Ocado has managed to register an annual pre-tax profit just three times since it was founded at the turn of the millennium.

Clive Black, analyst at Shore Capital and a renowned Ocado bear said the fundraising was not taking place from “a position of strength”, instead it “reflects material cash burn and concerns about liquidity”. For an online champion, it is unfortunate that Ocado repeatedly fails to deliver.

‘Investors certainly aren’t betting on a golden era for the digital retail titans’