Ocado relying on geographical expansion to build market share as rivals zoom ahead, says GlobalData

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Following today’s release of Ocado figures for Q1 FY2020/21; Thomas Brereton, senior retail analyst at GlobalData, a leading data and analytics company, offers his view: “Ocado Retail’s Q1 results display the same trend it showed throughout 2020 – strong growth for a grocery retailer, but weak when put in context of the channel it operates in. The UK online food & grocery market grew 135.7% over the same period, driven by the more dynamic approach (i.e. increasing store pick capabilities) to online fulfilment seen at established grocery players such as Tesco, Sainsbury’s, ASDA and Morrisons.

“Ocado is right to focus on national expansion to gain new customers. The online pureplay intends to open two more standard-sized customer fulfilment centres (CFCs) over the course of the next year, as well as seeking 12 more micro sites (primarily in London) to support the roll out of the rapid fulfilment Ocado Zoom service, following the successful launch of a similar site in Bristol. But while this focus on reducing fulfilment times is the right move for Ocado, there is certainly weight behind the idea that Ocado has failed to capitalise on its head start in this arena, with the likes of Deliveroo (which has a highly anticipated IPO set for April) and Uber Eats gaining traction throughout the pandemic, as well as opening the floodgates for a host of start-ups such as Weezy and Getir to offer a similar proposition. While Ocado Zoom was somewhat revolutionary when it was first announced, the delay in rolling out the proposition now means Ocado must pour in even more investment to get it to stand out.

“Of course, while Ocado may have missed the boat in this aspect, there is still a lot to be positive about. Demand for online groceries is clearly not dwindling, and Ocado’s operational rigidity is paving the way to improved profitability better than for many of its rivals. Its supply partner Marks & Spencer is also proving popular, with M&S products consistently accounting for over 25% of the average basket. But to become a real winner in the F&G market, Ocado needs to roll out new initiatives quicker – if only to prove to potential Solutions partners that it can cope with the fast-paced changes in consumer demands.”