Ocado has pleasantly surprised with the announcement that Sir Stuart Rose will become its new chairman.

Ocado has pleasantly surprised with the announcement that Sir Stuart Rose will become its new chairman.

We deem this to be good news all round because Sir Stuart is a larger than life character that we believe the industry is better having within the quoted camp than without. We look forward to his colourful perspectives and distinctive forms of expression feeding through on Ocado and all things supermarket.

Whilst we welcome the return of Sir Stuart to ‘the scene’, what does this mean for Ocado, a business that we have, frankly, struggled with as an investment proposition since its flotation was first muted? Well, he will certainly further raise the profile of the business and hopefully do so in a manner that is more constructive and effective than has been the case to date. Sir Stuart is not known to be either a shrinking violet or the glad sufferer of fools and so it will be interesting to see how matters pan out.

So far so good perhaps. However, what can he do to improve the lot of Ocado’s investors be it the performance of the business or its share price?

On the performance matter we have real problems with the Ocado business model because its fulfilment centres are simply too far from the customer, orders are too expensive to deliver and increasingly vulnerable to the rise of supermarket click & collect.

Additionally, Ocado is also at risk from the rise and rise of Waitrose, which along with Aldi, is Britain’s foremost food retailer at present. We just do not see a way out of these market conundrums so that Ocado delivers satisfactory profitability, earnings and so dividends; the lifeblood of investment. So, we think of that unfortunate but too often real phrase; ‘a bad company will beat good management’.

With questions over Sir Stuart’s wizard capabilities at the operating line, maybe he can engineer a high premium sale of Ocado? Well, we cannot rule that out of course, but quite why any current player in the UK or otherwise would take on Ocado’s business model at a premium price is a difficult one to us from a returns perspective.

However, Sir Stuart can be very charming. His selling skills will need to be at their sharpest to bring such an outcome off. We welcome Sir Stuart back and wish him all possible success.

  • Clive Black, Shore Capital