Ocado chief executive Tim Steiner has revealed plans to accelerate growth by challenging its rival grocers to a price battle through price promotions over the next year.
Steiner said the online grocer’s growth would reach a “tipping point” when consumers believe that shopping with Ocado is cheaper than alternatives, The Daily Telegraph said.
The move follows speculation that Ocado could breach banking covenants due to its investment in its new Midland distribution centre. However, supporting the business, Barclays Equity Research said in a report that fears over liquidity were “overdone” and that it was “reassured” about its future.
Steiner admitted that in the past the etailer had been viewed as a “premium” product.
Steiner said: “Obviously, we have brought our pricing down over the year, but we agree that the market will not reach tipping point until the online market is cheaper than the supermarkets. It is just not something that is going to go there overnight. It is a journey. Two weeks ago, we launched a pilot in Manchester called the lower price promise, where we are doing a basket match and we guarantee it will be cheaper.”
Steiner said the “lower price promise” will be rolled out nationally in the next few months and Ocado will invest more into price once efficiencies brought about by its new distribution centre are realised when it opens next year.
“Over the next two to three years, we would expect the opportunity to invest more money in the price proposition to take it below the price of the supermarkets,” he added.
Steiner said the grocer was on track to make a profit this year.
He said: “We don’t think we are under pressure. Our board review them [covenant provisions] monthly and we are confident about them. Every week the cash generated by the firm is more than our interest repayment and out replacement capex [capital expenditure]. Our business is on an improving trend once we get through the major capex project that we are doing [completing the second distribution centre].”
No comments yet