Share Prices & Company Research


14 July 2020

Ocado Retail Profits Boom

Ben Staniforth, Investment Research Analyst

The UK online grocery market has fundamentally changed over the past two quarters. To do their weekly shop, consumers have been faced with the options to either queue outside a supermarket or the flexibility of ordering from home - they have increasingly picked the latter. 

Ocado Retail, the joint venture between Ocado and Marks & Spencer, saw sales jump by 27% during the first half of the year. While these figures are impressive, they are dwarfed by an increase in sales of 48% and 87% for Tesco and Sainsbury’s respectively, during the first quarter of this year. 

Last month, Ocado tapped investors for £1bn to fund more robotic centres for its supermarket clients as they look to capitalise on the online boom created by the COVID-19 pandemic. The retailer is also searching for a successor to Lord Rose of Monewden, the retail veteran who has been the company Chairman for over seven years.

Unlike its more traditional rivals, Ocado requires extended time and capital to increase volumes due to their impressive technology. While this gives Ocado the advantage in the long run, and helps cut distribution costs, it concurrently stunts its ability to take market share from the industry giants in order to propel further growth and success.

One must remember that Ocado is much more than merely a grocery business. The profits from the retail division were cancelled out by the £45.1m loss in the international solutions business, which commercialises Ocado’s technology worldwide, despite opening two such centres in France and Canada.

Overall, the market trends are pointing in the right direction for Ocado with online grocery shopping likely to take a greater chunk of the wider market. Ocado will continue to invest in its technology, and investors may have to be patient before the full package is ready to deliver. 

Please note that investments and income arising from them can fall as well as rise in value and you may lose some or all the amount you have invested. Past performance and forecasts are not reliable indicators of future results or performance. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the companies mentioned. 
Ocado Retail Profits Boom
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