Ocado is getting a lot of bad press as its performance since it floated on the stock market in 2010 has been less than satisfactory for shareholders and the City. It must do something to boost profit and get the City back on side by attacking ballooning debt. However embarking on a price war with Tesco et al is not the way to do it.
CEO Tim Steiner’s plan, as told to The Telegraph this weekend, to embroil Ocado in the price wars that have enveloped the supermarkets undermines what the business set out to do.
Ocado is a smart company. It has a smart model run by smart people. It shouldn’t be looking to make itself cheaper than the other supermarkets as its model wasn’t built on price. It was built on offering something different to what was already available. Something premium with better service and quality. These are two things that are sure to fall to the wayside if Ocado gets bogged down in price wars.
In its latest figures, Ocado reported flat profit, against an 11 per cent rise in sales. It has a considerable debt pile and performance is being held back because it is in the process of building a second distribution centre that won’t start to trade until 2013. When it does, it will ease some of the financial pressure long-term but in the short term, eroding margins with lower prices is not the way to go.
The online grocer originally held itself up as a premium shopping service, although Steiner’s recent comments imply that this is a bad thing. It’s not, and Ocado should seek to emphasise this rather than chasing the lowest common denominator and sinking to the same prices offered by the major supermarkets.
A difficulty Ocado faces is that some of the features that initially made it different, such as convenient one hour delivery slots and a subscription model, have been pinched by its rivals. While imitation is the highest form of flattery, flattery doesn’t boost profits.
It’s not clear what Ocado, and recently appointed agency BD Network, have in mind for the autumn marketing push but Ocado should seek to distance itself from tit for tat price cuts and focus on what it does that makes it better and different.
Instead of going down the same price focused route its rivals have taken, Ocado’s leadership and marketing teams must look back to the principles the brand was founded on and find new ways to add value to its proposition that the traditional supermarkets can’t offer.