Ocado losses triple as CEO Tim Steiner commits to the long game of re-inventing retail
- Ocado spooked investors with a hefty increase in losses, but the tech spending goes on as the online grocery market hits an inflection point.
You’ve got to speculate to accumulate, but that can come at a high price as online grocery platform provider Ocado reminded us Tuesday. Only weeks after unveiling a hugely ambitious vision of the future, the firm saw its losses triple on the back of heavy investment in its core technologies.
The £176.9 million full year loss in turn sent its share price tumbling, wiping £1.4 billion off Ocado Group's market value. But the firm fully intends to play the long game with plans to invest a further £800 million this year in CapEx, up from £680 million for the past year.
While the company had won a favourable reaction to its Retail Re:Imagined strategy late last month, there was little sign of that goodwill yesterday as analysts returned to a long standing topic of why more partners hadn’t signed up to the Ocado Smart Platform (OSP) by now.
CEO Tim Steiner was having none of that, arguing:
It’s only, what is it, four years now since people thought we weren’t going to sign one, where it was us and [UK grocery chain] Morrisons. We’re now sitting with 10 customers or clients on the platform. We expect that number to grow. I can’t say exactly when or by how many…In terms of the developed or kind of higher income countries, we’ve covered off some of the largest ones already in the US, in Japan, for example. In terms of the high penetration markets like the UK, we’ve got two clients.
So I do expect us to see more. But what’s also critical is the growth in those existing markets, the incredibly high NPS scores that people are achieving as they are rolling out those facilities. We’ve gone from no international facilities to, I think, seven international facilities at the moment. And we’ve got nine new facilities going live next year. So there is a lot of activity.
Steiner is also banking on the Re:Imagined announcement prompting more interest from prospects around the world:
The grocery market is at an inflection point. A huge market opportunity exists online for grocery retailers who can deliver the best customer proposition with the best economics across every customer mission. The game-changing innovation driving the development of the Ocado Smart Platform allows our partners to fully take advantage of this opportunity. Partners ordering CFCs (Customer Fulfilment Centers) today will be able to go-live quicker at lower cost and achieve higher margins and higher returns on capital. For Ocado Group, this means a bigger addressable market, the opportunity to win new partners more quickly and fresh opportunities for growth with existing partners.
He added that he was receiving “really positive reactions” already:
[A] lot of people [are] saying, ‘No, we want more information. We want to understand how much cheaper, how much gets passed on to us? What does this mean? How quickly can we get that software live? How quickly can we be using a big shed to do 2-hour deliveries? How many 2-hour deliveries can we do from a big shed in a 1-hour radius?’. So [it’s a] really busy time for our teams because it’s really opened people’s imagination as to what’s possible.
The past year has further reinforced that demand for online grocery is here to stay. In the majority of mature markets, the fastest-growing channel is online, and to truly win here, food retailers need to deliver the best offer with the best economics across all customer missions.
There’s little doubt that Ocado is in the right place and that it has an ambitious and transformative vision. But equally there are clear signs that the stock market is getting impatient with a firm that’s 22 years old and still turning in massive losses. Group sales rose 7.2% year-on-year to £2.5billion, driven by a 4.6% bump in sales to £2.3billion at its UK grocery business, the joint venture with Marks & Spencer. But all some investors can see is that technology bill mounting.
For his part Steiner argues:
We have consistently set the bar in online grocery retailing over the last 20 years. Our deep culture of innovation is enabling us, once again, to reset the bar decisively for the benefit of our partners, their customers, our shareholders and the communities we serve. Exciting times are ahead.
Let’s hope so. One issue that might raise its head however is that the Re:Imagined vision is just that - a vision for now, one that will be realised over a period of time. While the new generation of 600 series bots at the heart of the strategy sound incredibly impressive and boast some significant benefits for retailers, they’re not ready to roll just yet. So if you’re a retailer interested in the tech that Ocado has to offer, you might be inclined to pause for a bit until you can get the most up-to-date offering. Steiner acknowledged:
If somebody wants a building that’s going to go live in the next six months, it’s a 500 series building. If they want one that’s going live in 18 months, it’s probably a 600 series building. And if they want to go live in 2 years, it’s definitively a 600 series building. And so we just have to take that into account. The client doesn’t need to take a risk on that. We take a risk on that, because we are [currently] building one series [the 500] and we will migrate to building another series.
Timing is everything. The question Ocado faces now is whose timescales is it working to - its own visionary one or the short term instincts of the stock market?