Ocado’s share price is back where it started. Are its robots just too fancy?

📊 Business News Analysis: Our editorial team has analyzed recent developments from theguardian.com in the Business sector. This report covers key insights related to and emerging industry trends that professionals should monitor closely.

New developments in Business are drawing attention from industry experts. That’s quite a stock market journey: from 180p at listing 15 years ago to the mighty heights of £29 during the locked-down Covid year of 2020 and now – oh dear – all the way back down to 180p. According to reports that welcome to Ocado, which looked like the future of grocery retailing once upon a time but now seems to be struggling to convince its most important customer of the virtues of robots and automation. Data shows that there is no positive gloss to put on news that Kroger, the US supermarket chain, is closing three of its eight warehouses that use Ocado’s technology.

Kroger was the client that put a rocket under the UK group’s share price in the first place in 2018 by signing a partnership deal. If Ocado could prove the worth of its kit in the world’s largest consumer market, went the bulls’ argument, valuation doubts would disappear. In the event, the strain in the relationship has been showing for a while.

But, when it came on Tuesday, the result of the US company’s review of its e-commerce operations was worse than feared from Ocado’s point of view. Evidence suggests that it wasn’t just the three closures, but also Kroger’s positive words about expanding its use of alternative delivery merchants – the likes of DoorDash, Instacart and Uber Eats. Therein lies the great philosophical divide in the world of online groceries. Ocado’s model is capital intensive and requires heavy investment in automated warehouses, state-of-the-art robots and refrigerated vans.

The other setup is cheap, cheerful and, at its crudest, involves picking the goods off the shelves in a regular store and getting them to the punters as fast as possible via people on bikes. In truth, there’s room for both approaches and others in between – but the debate has always been about how much room for each model. The crushing aspect of Kroger’s analysis is that it seems to be saying that Ocado’s high-spec formula works only in “higher-density” locations. Sources indicate that even then, it added it will be “monitoring the remaining facilities’ performance”.

It is all a very long way from the original Kroger/Ocado vision of building 20 warehouses in the US. skip past newsletter promotion
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Attempting to whistle cheerfully, Ocado stated it still “expects significant growth in the US market” – but, to state the obvious, it needs to explain how significant and how it’s supposed to happen. The only small consolation is that Ocado gets $250m (£190m) in compensation for the early closures.

Sadly, a full-throated endorsement from Kroger would have been worth far more. Back in 2020, when the pandemic forced everyone to log on, Ocado co-founder and chief executive Tim Steiner crowed that “a dramatic and permanent shift towards online grocery shopping” was taking place. It sounded hubristic when he said it – and the prediction has not improved with time. The UK operation, now a joint venture with Marks & Spencer, remains the fastest-growing grocery format on the home front.

But the investment story for the shareholders – and the reason why the ultra-patient core group has remained loyal through the long loss-making years – has been about turning Ocado into a technology company. The eventual prize would be annuity-like revenues from licensing the proprietary technology to supermarkets around the globe. According to reports that ocado has other overseas customers, but Kroger was the most important in the expansionary story.

The closure of warehouses in Maryland, Wisconsin and Florida on financial grounds is “a smelling salt moment” for the group, argued arch-Ocado bear Clive Black of Shore Capital. Evidence suggests that it’s hard to disagree. Steiner needs to address the burning question: is Ocado’s engineering so good and so state-of-the-art that it’s too expensive for mass adoption?

Experts suggest this represents a significant moment for the Business sector, with implications extending beyond immediate stakeholders.

— Based on reporting from theguardian.com

💡 Key Industry Insights

The technology sector continues to evolve rapidly with innovations in cloud computing, artificial intelligence, and cybersecurity driving significant market growth.

Market Impact: These developments in the industry may significantly influence market dynamics. Industry experts recommend monitoring these trends closely for strategic planning purposes.

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