The Ocado stock had always looked like an investment more akin to a gamble, rather than an odds-on winner.
The etailer took 15 years to turn its first full-year pre-tax profit as investment continued to be ploughed into its technological capabilities.
And the protracted search to secure an international partner only added fuel to the fires lit by a number of analysts, who have regularly gone on record to voice their doubts about the attractiveness of Ocado’s shares.
“Ocado founder Tim Steiner would have been forgiven then had he popped a cork and quietly proclaimed ‘I told you so’ last week, after penning a deal to license its proprietary Smart Platform technology to French grocery giant Casino”
Ocado founder Tim Steiner would have been forgiven then had he popped a cork and quietly proclaimed “I told you so” last week, after penning a deal to license its proprietary Smart Platform technology to French grocery giant Casino.
Despite having its stock questioned, perhaps even written off, by many, Ocado’s share price surged 20% on the day the deal was unveiled and, despite a slight dip at the start of this week, remained above the 350p-mark at the time of writing.
A fourth-quarter trading update next week should bring further welcome upticks, this time in the form of increased retail sales.
Bullish businessman and former Goldman Sachs banker Steiner therefore deserves great credit for sticking to his guns – for stacking his chips high and betting big on a swathe of technological and fulfilment innovations that he hopes will now lay the foundations for global growth.
Gobbling up share in one of the most fiercely competitive markets in world retail – the UK grocery sector – was never going to be a quick and easy task.
But Steiner and company always had bigger wagers to place.
Named after avocados – which grocers often use internally as a barometer of fruit and vegetable ‘freshness’ – Ocado wanted to create a fresh take of its own on grocery fulfilment, which it could then license to the world.
Hargreaves Lansdown equity analyst George Salmon believes the Casino deal has now “kick-started Ocado’s transformation from niche British retailer into an international provider of game-changing technology”.
The “game-changing technology” Salmon refers to is already fully operational at its third warehouse in Andover, Hampshire, and will also be used in its Erith fulfilment centre when it opens next year.
Steiner always claimed that, in a world characterised by the increasing onslaught of Amazon – notably its recent $13.7bn acquisition of Whole Foods – Ocado’s automated picking technology would prove even more attractive to grocery retailers across Europe and North America in particular.
It may even have been market speculation surrounding an Amazon tie-up with Carrefour – Casino’s fierce French rival – that prompted the latter to strike a deal with Ocado.
“Suddenly, Steiner’s vision to ‘pepper the globe’ with Ocado’s hi-tech warehouses doesn’t seem like such a long shot after all”
But Amazon is stacking the deck against all comers.
It won’t, therefore, only be the French contemplating a flutter on the technology and expertise that Ocado could provide.
Amazon’s share of the US market has grown since its surprise Whole Foods buy, and grocery ecommerce is increasingly being adopted by the Dutch and Chinese markets too, to name just a few.
Suddenly, Steiner’s vision to “pepper the globe” with Ocado’s hi-tech warehouses doesn’t seem like such a long shot after all.
Proof of concept overseas, of course, will be measured by the success of the Casino tie-up.
But should the partnership prove fruitful, Ocado could quickly establish itself as the safe bet for retailers in the fight to fend off Amazon.