Ocado’s business model means it has had to invest massively to build scale – and this has continued to weigh on the profitability of the etailer.
The move also cemented its status as a technology provider as much as a retailer, with the sale of its Ocado Smart Platform now a key strategic focus.
“The somewhat disappointing profit figures have only underlined how crucial their search for a new partnership has now become”
Having spent much of 2016 assuring shareholders that solid progress was being made on new international deals, boss Tim Steiner and finance chief Duncan Tatton-Brown will have been frustrated to greet the City yet again today with nothing concrete to show for those efforts.
The somewhat disappointing profit figures have only underlined how crucial their search for a new partnership has now become.
News of Luke Jensen’s appointment to the newly created role of chief executive of the Ocado Smart Platform will move things up a gear.
The well-respected former Sainsbury’s development director will join Ocado in mid-February and is charged with accelerating discussions with international retailers.
There is a lot for Jensen and Ocado to play for.
Today’s 2015/16 preliminary results showed that the recently extended supply deal with Morrisons provided a £100m boost to revenue at Ocado – and has been driving the online grocer’s sales and margin growth.
“The recently extended supply deal with Morrisons provided a £100m boost to revenue at Ocado”
Including the Morrisons joint venture, overall gross margin reached a high of 34.2% in the year to November 27, 2016, more than offsetting steadily declining retail gross margins.
In an increasingly price-led grocery market, these fell by half a percentage point to 28.7% over the financial year.
Net debt rose 30% to £165m in 2015/16 after a 25% spike in capital expenditure to £153m.
And with capital expenditure set to come in even higher at around £175m during its current financial year, this massive investment in infrastructure and technology will continue to impact Ocado’s bottom line.
International deal critical
While the next-generation customer fulfilment centres in Andover and Erith will bring significant improvements in efficiency – thanks to the implementation of the Ocado Smart Platform – the signing of a new technology and logistics agreement over the next few months has now become critical.
Jensen’s job should be made easier by the fact that, with the new Andover warehouse now up and running, prospective partners can at least see the technology in action.
But some 12 months after Steiner initially pledged to secure an international partner, Jensen will be under instant pressure to help him finally deliver on that promise.