Close your eyes and you might have thought Ocado was announcing good news. Both its North American partners, Kroger in the US and Sobeys in Canada, reported “strong growth in digital sales” in their latest quarterly updates, the British firm enthused.
But, dear. What Thursday’s statement was really conveying was that Sobeys, like Kroger last year, has hit the pause button on opening more Ocado robot-filled warehouses. Canada’s fourth “Customer Fulfillment Center” (CFC), set to open in Vancouver next year, will be delayed despite being largely built.
Trigger a 12% plunge in Ocado’s share price to 310p, a level not seen since 2017, the year the British group began signing deals with overseas supermarket chains and urged investors to start thinking of it as a supplier of flash automated technology to the world, unlike a domestic online grocer trying to make money.
The pitch worked great during the pandemic when everyone wanted to have their shopping delivered to their door. As shares in Ocado soared to £29, briefly making the company more valuable than Tesco, founder and chief executive Tim Steiner said there was a “dramatic and sustained shift towards online grocery shopping”.
The reality was very different. Demand calmed down after the pandemic, as the arrogant Steiner should have suspected would happen. This question has become one of online progress under normal conditions. Answer: Not as fast as we had hoped. Sobeys’ parent company, Empire, said: “Once the rate of e-commerce expansion in Canada increases, the company will be able to quickly decide when to proceed with the opening of its fourth CFC.”
Of course, a delay is not a cancellation. On the other hand, Sobeys is also paying a small sum for the early termination of its mutual exclusivity agreement with Ocade, which hardly screams long-term enthusiasm.
Ocado whistled cheerfully, saying its group-wide target to generate positive cash flow “over the medium term” was intact. But this latest example of delay will only add to the impression that Ocado is a place where the medium term seems to be constantly around the next corner. The company seems to be the future of grocery retailing for about 20 years now.
The short-term reality is a pre-tax loss of £394m last year, after one of £501m in the previous outing. And an entertaining public spat with Marks & Spencer continues to bubble over the final payment to buy one half of Ocado Retail’s UK business in 2019. Whatever the financial rights and wrongs of the row, the saga is terrible publicity in Ocado’s house. a market he calls his “window display”. Meanwhile, an exit from the FTSE 100 is looming.
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It is of course possible to take “another view” and reflect that Ocado has opened 22 Freon’s worldwide and still has partnerships with 12 retailers. The promised land of profits, cash generation and great rates of return for mature CFCs may yet materialize. Major shareholders, mind you, are still showing heroic amounts of patience. However, we can say that the valuation of the pandemic was truly absurd.