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Seven minutes is a very long time in efficient markets, which no longer seems to describe the London stock market.
Shares of Ocado, a British-listed grocery delivery and cash burn specialist, fell 17 percent at the pixel level in response to a warning that Canadian retailer Sobeys had canceled their exclusivity deal and mothballed a nearly built warehouse. The meltdown was immediate when Ocado’s warning appeared on tape at 11:37:49 BST, even though the news was already out.
Empire, Sobeys’ parent company, published its fourth quarter results on Canada NewsWire at 11:30:05 BST. All news regarding the Ocado partnership is contained in a three-paragraph introductory preamble from Michael Medline, president and CEO of Empire:
We continue to explore every opportunity to improve our overall profitability and every Voilà CFC takes time to become profitable; As a result, we will pause the opening of our fourth customer fulfillment center in Vancouver, allowing us to focus on driving performance and volume across our three active CFCs. We are also working with our partner Ocado to reduce costs and provide more flexibility to serve our customers more broadly, including ending our mutual exclusivity agreement.
Further down the page, Empire lays out its reasoning in much more detail than Ocado’s statement. Essentially, Ocado’s kit is too expensive to work effectively at current volumes:
In fiscal 2021, the company introduced its new e-commerce platform, Voilà, which revolutionized online grocery home delivery in Canada. Voilà is powered by industry-leading technology delivered by Ocado through its automated CFCs. The company plans to operate four CFCs across Canada, with supporting spokes and curbside pickup. This will allow the company to serve approximately 75% of Canadian households, representing approximately 90% of Canadians’ expected e-commerce spend. To serve Canadian households outside the main CFC service areas, the company operates a Voilà pick-up service, serving 98 stores in locations across Canada.
The company has three active CFCs in Toronto, Montreal and Calgary. In the quarter ended May 4, 2024, the company decided to pause the opening of its fourth CFC in Vancouver, British Columbia to focus efforts on driving volume and performance of its three active CFCs. Construction of the external building for the fourth CFC is largely complete and internal work related to the installation of the electrical grid and the commissioning of the robots has not yet started. Once e-commerce penetration increases in Canada, the company will be able to make a quick decision on when it will proceed with the opening of its fourth CFC.
The company has also taken steps to reduce costs and increase flexibility to serve customers, including terminating its cross-exclusivity agreement with Ocado after the year ending May 4, 2024, slightly before it was originally expected to end. This will result in a one-time charge related to the termination of exclusivity of $11.9 million in the first quarter of fiscal 2025.
For anyone paying attention, this should have been free money. But Ocado’s tick chart (below) shows no indication of a reaction, either in price or volume, between Empire’s report and its own. Ditto options.
Things were looking good for the London market, with the successful launch of the Raspberry Pi raising hopes that sentiment had turned around in the City. That a FTSE 100 share* would not respond to an obvious sell signal based on news to foreign investors feels like significant evidence that it remains a financial problem.
* FTSE Russell announced Ocado’s demotion to mid-caps on June 5, but the change doesn’t come into effect until June 24, so this is technically correct.