Close your eyes and you might have thought Ocado was announcing good news. Both its partners in North America, Kroger in the US and Sobeys in Canada, have announced “strong growth in digital sales” in their latest quarterly updates, the UK firm said excitedly.
But, oh dear. What Thursday’s statement was really relaying was that Sobeys, like Kroger last year, has hit the pause button on opening more warehouses filled with Ocado’s robots. A fourth Canadian “customer fulfilment centre” (CFC), due to open in Vancouver next year, will be delayed, even though it is mostly built.
Cue a 12% plunge in Ocado’s share price to 310p, a level not seen since 2017, the year the UK group started signing deals with overseas supermarket chains and invited investors to start thinking of it as a supplier of whizzy automated technology to the world, as opposed to a domestic online grocer struggling to make a profit.
The pitch worked splendidly during the pandemic when everybody wanted shopping delivered to the door. As Ocado’s shares soared to the heights of £29, briefly making the company more valuable than Tesco, founder and chief executive Tim Steiner declared that “a dramatic and permanent shift towards online grocery shopping” was taking place.
The reality was very different. Demand calmed down post-pandemic, as the hubristic Steiner should have suspected it would. The question became one of online’s progress under normal conditions. Answer: not as fast as hoped. Sobeys’ parent company, Empire, spelled it out: “Once e-commerce penetration rates in Canada increase, the company will be in a position to make a decision quickly on when it will proceed with the opening of its fourth CFC.”
Delay is not cancellation, obviously. On the other hand, Sobeys is also paying a small sum to end its mutual exclusivity agreement with Ocado early, which hardly screams long-term enthusiasm.
Whistling cheerfully, Ocado said its group-wide target to generate positive cashflow “in the midterm” is intact. But this latest example of delays will merely add to the impression that Ocado is a place where the medium-term seems perpetually to lie around the next corner. It feels like the company has been the future of food retailing for about 20 years already.
The short-term reality is a pre-tax loss of £394m last year, after one of £501m on the previous outing. And the entertaining public row with Marks & Spencer continues to bubble away over the final payment for the purchase of one half of the Ocado Retail UK business in 2019. Whatever the financial rights and wrongs of the quarrel, the saga is terrible advertising in Ocado’s home market, the one it calls its “shop window”. Meanwhile, exit from the FTSE 100 index looms.
One can, of course, take the “one more heave” view and reflect that Ocado has opened 22 CFCs around the world and still has partnerships with 12 retailers. The promised land of profits, cash generation and wonderful rates of return on mature CFCs may yet materialise. The core shareholders, note, are still showing heroic levels of patience. We can, though, say that pandemic valuation was truly absurd.
