Not where we wanted it to be.

A solemn admission from Ocado CEO Tim Steiner on the state of the online grocery firm’s joint venture with Marks & Spencer (M&S) and a far cry from the optimism expressed by both parties back in 2019 when they teamed up to launch the £750 million Ocado Retail.

Tensions have been increasingly obvious between the two partners, with M&S Chairman Archie Norman telling shareholders that he is “not happy” with the performance of the JV:

Joint ventures are hard, but online food is also hard, so we’ve got work to do.

Yesterday as Ocado racked up another record-breaking set of half-year losses, Steiner made clear that he shared the sentiment:

If we look back at where we were in 2019, and what we hoped the business would be trading at right now, obviously that’s disappointing.

But he insisted:

We're making really strong progress. That's not to say it hasn't been challenging because, obviously, Ocado Retail had a huge surge over COVID. It was extremely profitable over COVID. A number of its suppliers started operating at service levels that would never have been acceptable pre-COVID. A lot of experience got lost in the whole industry generally. And we came out of COVID in a stronger position as we wanted to be.

Last September, Ocado Group appointed Hannah Gibson as CEO of Ocado Retail to get it into shape. Steiner said yesterday:

I think the key thing that Hannah has been doing with the team at Ocado Retail is a ‘back-to-basics’ is perfect execution. And we are seeing really positive results from that already. We can see it in the customer perception. We're seeing marked improvements in our customer perception across value, service and range. Our value NPS [Net Promotor Scores] have improved materially since Hannah re-introduced a price matching scheme that we had successfully ran for over 10 years before it was turned off. Turning it back on again and pushing it to customers have really been reinforcing our value credentials as well as the actual hard investments in margin, in pricing.

US success

Leaving M&S to one side, Steiner took time to focus on a US success story in the shape of retail giant Kroger:

We've been running some programs with Kroger and known between ourselves as Project Endeavor, working very closely with Kroger and their teams to drive operational performance. We set out initially a single 12-week program. We are currently in the second 12-week program.

The initial focus was on CFCs [Customer Fulfilment Centres], what they call 1 and 3 that were actually at the first to open, the  two that opened in '21, that's Ohio and Florida. We completed Phase 1. We're on to the second phase. We're cementing the initial progress and driving it forward.

We're addressing other additional opportunities and Kroger now. We’re supporting Kroger in working out and working on how they can successfully apply those learnings across the other live sites and how they can make sure that those learnings are taken into account in the sites that aren't yet live.

As to what that first phase achieved, Steiner pointed to a 25% increase in units shifted per hour:

That's the key metric in the warehouse, how many units do I ship from [it], how many labor hours I pay for. That's an extraordinary achievement in a 12-week program. Drops per van improved by 10%. That falls straight down to your bottom line. Whilst improving availability, food waste went down by over 30% and  [there was an] operational cost reduction of over 15%. There's a lot more to go after, but some of those stats are starting to get pretty good. And then overall, with growth they will show and help Kroger to get to a very attractive operating metrics.

My take

Back to the future or back-to-basics may be another term for it.

Or ‘when do we get to see a return on our investment?’ might be another way of putting it for increasingly disgruntled M&S shareholders, joining the chorus of unhappiness that’s been commonplace among Ocado investors over the years.

With the fifth anniversary of the JV coming up, Steiner insists:

I don't think the fifth anniversary triggers any rethinking about our ownership of the 50% of the joint venture…We see that business having a very exciting future in the UK. And at the moment, we're very happy with it being part of the Group.

We shall see.