Ocado in talks to seal debut overseas deal
Morrisons’ contract ensures first profit
ONLINE GROCER Ocado, which delivers groceries for Morrisons and Waitrose, said it is confident it will sign its first deal with an overseas retailer this year and it is in talks with several potential partners.
Ocado‘s £170m deal with Bradford-based Morrisons led to its first annual profit in 15 years, but there has been speculation over the future of the contract following the appointment of new chief executive David Potts, who is keen to cut costs and return the supermarket to good health.
Last week Mr Potts said he would sell 140 convenience stores and close 11 underperforming supermarkets, but he said the tieup with Ocado had made a “good start” in what he sees as a growth market.
“We are 18 months into our contract with Ocado and remain pleased with the key customer metrics,” he said.
Ocado said Morrisons is tied to a 25-year deal under the terms of the contract.
Ocado’s finance director Duncan Tatton-Brown said: “Ocado is the exclusive provider of online grocery services for Morrisons. That is the terms of the deal for the remaining 23 years. The contract will prevent Morrisons launching another service.”
Asked when Ocado will sign another deal, Mr Tatton-Brown said: “We’re still targeting to sign one this year.
“It’s been a busy summer as it would need to be if we’re going to achieve the target that we set out.”
The company has previously talked about doing a deal in North America and western Europe.
Ocado reported a better-thanexpected 15 per cent rise in gross retail sales to £252m in the 12 weeks to August 9 as trading showed steady progress.
This was down slightly on the 16 per cent growth in the previous three months.
Ocado said its average basket size fell 1.1 per cent to £110.46, its sixth quarterly fall in a row.
Prices are falling in the grocery sector amid zero inflation as the big four players – Tesco, Asda, Sainsbury’s and Morrisons – slash prices to compete with discounter Aldi and Lidl.
Ocado chief executive Tim Steiner said the group is pleased with its steady growth in a retail environment that remains tough.
“Notwithstanding the competitive nature of the marketplace, we expect to continue growing slightly ahead of the online grocery market,” he added.
But analysts at HSBC said: “The ongoing price competition in the wider grocery sector in the UK is having an impact on Ocado especially on its Low Price Promise – cheaper than Tesco – matched products.”
Analyst Clive Black at Shore Capital added: “The company continues to suffer basket erosion whilst the brand only marginally out-performs the UK online grocery market.”
Ocado could face new competition if US online shopping giant Amazon goes ahead with plans to launch its Amazon Fresh food operation in the crowded UK grocery market.
Brokers at HSBC said that Amazon has a history of sustaining losses while it builds new operations.
HSBC added: “Our view is that Ocado appears like the most vulnerable player particularly if Amazon targets the lucrative, densely populated London market.”
Ocado has divided analysts. Some view it as the future of grocery shopping, but others see it as a costly venture that will never make sustained profits.
The contract will prevent Morrisons launching another service. Duncan Tatton-Brown, finance director at Ocado