Ocado’s share price slumped to its lowest level for more than six years yesterday after it revealed that plans to open a fourth robotic warehouse for Canadian supermarket chain Sobeys had been put on hold, and their tie-up was no longer exclusive.
The customer fulfilment centre (CFC) in Vancouver was originally planned to open in 2025 to support Sobeys growth in the online channel. However, the ‘go-live’ date has now been paused and will be reviewed regularly, with Ocado and Sobeys saying they had decided to focus their resources on driving volumes across the current three warehouses and manual fulfilment in nearly 100 stores.
The two firms also revealed that they had agreed to end terms related to mutual exclusivity, which means they can seek other partners. Their initial partnership deal was signed in 2018.
Following the announcement, Ocado’s stock sank over 17% to levels not seen since 2017. Its shares have already lost nearly 60% of their value this year amid concerns about the performance of its joint venture with M&S and the decision by Kroger in the US – another key partner – to shutter three sites powered by Ocado. As a result, Ocado dropped out of the FTSE 100 index this month following the latest reshuffle.
“We see this as bad news for Ocado as Canada has been performing well, and it adds to another partner who is pulling back alongside Kroger and problems at Coles (in Australia),” said Bernstein analyst William Woods.
He suggested that this was related to the weak rebound in online sales following the inflation crisis, which was challenging the unit economics of ramping up automated warehouses.
However, in its statement yesterday, Ocado noted that Sobeys and Kroger had both announced strong growth in digital sales in their latest quarterly results. It also highlighted that its Ocado Retail venture was currently the UK’s fastest-growing grocer.
“There is clear evidence that online is returning overall to being the fastest growing channel in grocery,” Ocado said.
The company stated that its financial guidance for 2024 was unchanged, together with its target to be cash flow positive in the mid-term.
NAM Implications:
- Ocado is patently being forced into a position whereby they will split the business into Retail and Tech.
- Sell off Retail while it can generate a good price…
- …and focus and optimise the potential of the Tech business.
- Otherwise, someone will do it for them…
