close your eyes and you might have thought Ocado was announcing good news. Both partners in North America, Kroger in the US and Sobeys in Canada, announced “strong growth in digital sales” in their latest quarterly updates, the British company enthused.
But oh dear. What Thursday’s statement really made clear was that Sobeys, like Kroger last year, has hit the pause button on opening more warehouses full of Ocado robots. A fourth Canadian customer fulfillment center (CFC), scheduled to open in Vancouver next year, will be postponed even though it is largely built.
Expect a 12% drop in Ocado’s share price to 310p, a level not seen since 2017, the year the British group started making deals with overseas supermarket chains and invited investors to start looking at the company as a supplier of super automatic technology to the world. unlike a domestic online grocer that struggles to make a profit.
The field worked great during the pandemic, when everyone wanted groceries delivered to their door. As Ocado shares soared to a high of £29, briefly making the company more valuable than Tesco, founder and CEO Tim Steiner declared that there was “a dramatic and permanent shift to online grocery shopping”.
The reality was very different. Demand calmed down after the pandemic, as the hubristic Steiner should have suspected. The question became one of the progress of online under normal circumstances. Answer: not as quickly as hoped. Sobeys’ parent company, Empire, put it this way: “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.”
A delay is of course not a cancellation. On the other hand, Sobeys is also paying a small sum to end its mutual exclusivity deal with Ocado early, which hardly screams long-term enthusiasm.
Whistling happily, Ocado said its group-wide target to generate positive cash flow “over the medium term” is intact. But this latest example of delays will only add to the impression that Ocado is a place where the medium term seems to be perpetually around the next corner. It feels like the company has been the future of food retailing for about twenty years.
The short-term reality is a pre-tax loss of £394 million last year, after a £501 million loss in the previous edition. And the entertainingly public row with Marks & Spencer continues to bubble up over the final payment for the purchase of half of the Ocado Retail UK business in 2019. Whatever the financial rights and wrongs of the row, the saga is terrible advertising in the house of Ocado. market, which she calls her ‘shop window’. Meanwhile, an exit from the FTSE 100 index is looming.
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Of course, you can take a ‘one more go’ perspective and consider that Ocado has opened 22 CFCs around the world and still has partnerships with 12 retailers. The promised land of profits, cash generation and great returns on mature CFCs could yet materialize. Note that core shareholders are still showing heroic levels of patience. However, we can say that the valuation of the pandemic was truly absurd.