With Waitrose set to launch a full online offer within the M25, we look at what this means for Ocado

Why are we talking about this now?

Last week Waitrose kicked off its biggest marketing campaign to date for its online grocery offer Waitrose.com. Although starting outside of London, the campaign moves into the capital during July and August.

Why is Waitrose targeting London?

Owing to its supply agreement with Ocado, Waitrose could not previously operate an online grocery delivery service within the M25. This year that comes to an end and, while it remains a supplier to Ocado, Waitrose can now develop its own online grocery operation in the capital.

How big is Waitrose’s online grocery service at the moment?

About 150 stores offer Waitrose.com, covering 96% of the Waitrose estate outside of the M25. In London, 16 stores currently offer the service; the aim is to have full coverage by mid-August. In October the grocer will step up capacity by opening a ‘dark store’ for fulfilling online orders in Acton, west London. It aims to develop operations based on service (for example, shoppers can specify how thickly their ham is sliced) and free delivery.

Waitrose spent £10m relaunching its website earlier this year, but had a few technological teething problems.

How much of a threat is Waitrose to Ocado?

Ocado has built its business based on selling Waitrose products so it has attracted a mainly middle to upper-class customer base. Most of its business is also within the M25 and, according to its prospectus, about 50% of its gross sales in the year to November 2009 were there.
Some customers already confuse Ocado with Waitrose and believe it is Waitrose’s delivery arm, so Waitrose’s launch may draw some customers away. However, Ocado has had a head start in terms of developing its operation. It prides itself on customer service, as does Waitrose, and its customers have come to trust it. It also has the facility to be able to deliver items such as steak cut to how the customer wants.

Ocado has said it only has a small percentage of the market within the M25 and there is plenty left to go for. It also said that, in areas where both it and Waitrose operate, both firms grow faster than the market.

For how long will Waitrose continue to supply Ocado?

Last year the two grocers signed a new 10-year agreement with a get-out clause at eight years. So Ocado has some breathing space to develop its own offer if Waitrose decides to pull the plug or if it gets an offer to buy the company from a competitor.