Ocado is considering future expansion of its retail operations outside the UK
Ocado is considering a future expansion of its retail operations outside the UK for the first time, its chief executive has said.
Tim Steiner, one of the trio who co-founded Ocado in 2000, told the Financial Times that while his “ideal” approach was to act as a technology provider to supermarkets, it had not ruled out entering new markets itself. Any move would only be into regions where it does not have an existing supermarket customer, leaving several large markets in western Europe as potential options.
“The pandemic, we believe, has permanently accelerated the channel shift [to ecommerce] and some of those markets that were behind the UK are more attractive for somebody to enter aggressively now than they were before the pandemic,” said the Ocado chief executive. “If we haven’t got the right potential partner there, then they’re more attractive for us to think about ourselves.”
In an interview, Steiner — a former bond trader turned online grocery pioneer — also questioned the sustainability of new rivals offering urban grocery deliveries in as little as 10 minutes, such as Getir, Gopuff and Gorillas, which are attracting huge investment from venture capitalists.
He compared their “crazily” and “massively more aggressive” discounting with the infamous dotcom-bubble delivery service, Kozmo.com.
“Anything that’s come of age during the pandemic, I think you’ve got to take a very careful look at it to say, does it offer a proposition and a value that in a post-pandemic world is going to be attractive?” he said.
As rapid delivery start-ups are spending hundreds of millions of pounds to open dozens of “dark stores” across the UK and to promote their apps, Ocado is progressing more cautiously with its own one-hour-delivery service, Zoom.
“It is very early to write us off in the immediacy space because we definitely know how to do this, and how to do it profitably as opposed to doing it crazily”
While it remains focused on expanding its vast out-of-town warehouses, Steiner said Ocado may open up to 20 of its smaller Zoom sites in the coming years, after a recent trial in West London.
“We might be going at this more prudently than others, but we may well emerge — in the kind of ‘tortoise and hare’ style — as the winner in that [rapid grocery] space as well,” he said. “It is very early to write us off in the immediacy space because we definitely know how to do this, and how to do it profitably as opposed to doing it crazily.”
Last year, investors saw Ocado as one of the pandemic’s big winners, as consumers turned to its online supermarket in droves during lockdowns. Despite supply and logistical constraints that forced it to shutter its mobile app and freeze new customer sign-ups for much of 2020, its share price rose 80 per cent over the year.
The stock has, however, lost almost a fifth of its value so far in 2021, as high streets reopen and lockdowns ease.
FTSE 100-listed Ocado has sold its technology and expertise to supermarket groups in countries from Sweden to the US. But it only operates as a retailer itself in the UK, through a joint venture with Marks and Spencer.
Those technology agreements contain exclusivity clauses that bar Ocado from working with any other food retailer in the same country. But that still leaves opportunities for Ocado Retail in markets such as Germany, Spain or Italy, where online grocery penetration is still about half UK levels, according to Bain & Co.
“The next five, 10 years, you may well find that we decide to run a retail business outside the UK,” Steiner said, although he stressed that no decisions were imminent.
Although Ocado has not signed up any new supermarket clients since 2019, he denied that was driving what he called a “thought process” about retail expansion.
Steiner said he “remains confident our model is right . . . There is no online grocer anywhere in the world that has the economic metrics of Ocado”.
The automation technology that underpins that efficiency also extends to its smaller Zoom fulfilment centres. Steiner said this gave Ocado a long-term advantage against new competition such as Getir and Gorillas, which rely on couriers to pick from a limited range of items inside “micro” fulfilment centres.
“We can run a microsite for less operating cost than anyone else in the world because we can leverage our proprietary systems,” he said.
Steiner was scathing about the heavy discounting that Ocado’s start-up rivals are using to lure customers in what he described as a “very little niche of the overall grocery market”, namely local convenience stores.
“They’re getting rewarded by the markets for showing top-line customer acquisition, a little bit like in [the year] 2000 when it was all about clicks, it wasn’t about revenue or profitability,” Steiner continued. “If I went to the corner of my road and handed out £50 notes for £5, I’ll have a big queue there by the end of the day.”
