The market has been waiting a long time for Ocado to sign up new partners for its logistics technology, particularly as the pandemic has accelerated the shift for consumers to order groceries online. Ocado has now struck gold with a new deal in Spain.
The pandemic created both tailwinds and headwinds for the group. The surge in demand for people trying to book food and drink deliveries during the pandemic was proof that they were ready to change the way they buy everyday goods.
Most of the big retailers already have online capabilities, but few could do so on the required scale and so it meant a company like Ocado had a prime opportunity to step in and sell its robotics warehouse platform to help facilitate stronger capabilities to fulfil online orders.
Unfortunately, the deals didn’t immediately emerge, with Ocado blaming travel restrictions on its ability to get out and sell its services.
“With travel corridors now opening again, Ocado should be in a stronger position to pick up new contracts, and certainly the market backdrop remains in its favour,” says AJ Bell investment director Russ Mould.
“Grocery sellers have no choice but to invest in their online fulfilment capabilities as it seems highly unlikely that consumers will all switch back to the old ways of buying food and drink.
“While Ocado’s new deal in Spain with Auchan Retail may not initially look like a big deal, there is a line in the statement which says the companies will explore the potential to expand the partnership into other geographies. Auchan operates in 13 countries including France, Portugal, Russia and Ukraine, which suggests that Ocado has got its foot in a very important door.
“A joint venture with Marks & Spencer in the UK provides a solid backbone of revenue while Ocado invests in rolling out services for other partners, and importantly investing in research and development to help give it a technological edge and lower costs in the future.
“Ocado is a multi-decade growth story and the ‘spend money to make money’ phase is going to be around for some time. Years ahead it could be generating significant income from its plethora of partnerships and that’s why the stock market seems happy to put the company on a high valuation rather than focus purely on profit. That’s fortunate because Ocado is still loss-making.”