Operational rigidity prevents Ocado from gaining a stronger foothold in online grocery, says GlobalData

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Following today’s release of Ocado figures for FY2019/20; Thomas Brereton, senior retail analyst at GlobalData, a leading data and analytics company, comments: “Ocado’s full-year results certainly appear impressive at first glance, with retail revenue rising to £2.2bn and retail EBITDA growing 265.8% (to £148.5m) as shopping for groceries soared in popularity over the course of the COVID-19 pandemic. But when viewed in relation to the wider online grocery market – which grew 87.8% in 2020 – and rival’s results, it is clear Ocado has failed to keep pace with the likes of Tesco, Sainsbury’s and Waitrose over the course of the year. This largely stems from its inability to meet the boom in demand the way its supermarket rivals have been able to, i.e. through rapid escalation of in-store picking services for online fulfilment. This problem is confirmed by its 29.2% increase in average basket size, which – although undoubtedly responsible for its meteoric rise in retail EBITDA margin – also masks the reality that the number of active customers fell 14.5% over the period, hindered by the closure of its website and temporarily pausing new customer acquisition.

“This disparity with rivals raises some questions about Ocado’s operating model and broader proposition in its Solutions division; in particular, the ability of its proprietary data-driven warehouses to demonstrate flexibility at times when online grocery demand is not so predictable. Of course, the chaotic market dynamics seen during COVID-19 is a thankfully rare event, but will still give potential partners cause to consider if Ocado’s grandiose vision has the power to match quick changes to consumer preferences. Ocado’s home market in the UK is a perfect example, with a host of fulfilment operators (most notably Deliveroo and Uber Eats) now offering groceries home-delivered in less than an hour, and giving credit to the notion that well-oiled, flexible, gig economy-based enterprises can react much quicker than automated, rigid supply systems.

“To counteract this, Ocado must ensure that some flexibility remains in its structure, as well as placing greater investment emphasis on rapid fulfilment options. Ocado does operate Ocado Zoom, which offers a similar proposition to its nimbler rivals, but at this time Ocado Zoom feels much more like an afterthought than a primary source of gaining market share. And to remain relevant, Ocado needs to act fast – rivals (especially Waitrose) are working hard on gaining (and keeping) new customers, and it will be difficult for Ocado to pry shoppers away once familiarity and comfort with an online supermarket has been established.”

Chris Daly, CEO of the Chartered Institute of Marketing, said: “Food retailers have seen high demand throughout the pandemic, especially online, something borne out in the results of all the major supermarkets. 

“Ocado is no different. The decision to split from Waitrose in August of last year was a risk, but the new joint venture with Marks & Spencer has paid off in the form of skyrocketing sales. 

“The retailer still has a small share of the food shopping market, however, and it will need to focus its efforts on establishing a clearer brand identity if it is to capitalise on this success and compete with the likes of Tesco and Sainsbury’s. 

“If Ocado wants to achieve serious growth it will have to break the big six supermarket stranglehold on the “family shop”. To achieve this it will need to convince customers it is an online family supermarket rather than a technology company or a delivery firm.”