There is long term value in Ocado

As an Ocado shopper, I was recently offered the opportunity to participate in the company’s forthcoming stock market flotation – although if city analysts are to be believed, this may not be the best offer Ocado has ever delivered.

Ocado has never made a profit, needs major capital expenditure to expand capacity and is said to be overly dependent on its supply relationship with supermarket Waitrose. All of which leads analysts to advise that I do my shopping elsewhere. I hear their concerns and the price is indeed punchy, yet as a customer of and supplier to Ocado, I feel I know the business rather well and I will make my investment decision on this basis.

There is much to admire about Ocado, but the thing I rate most is its focus. It is not a multi-channel retailer, but a single-minded ecommerce home delivery player. It now delivers to nearly 100,000 households a week. Critics might think that the business is too dependent on well-to-do AB audiences in London and the South-east, whereas I find its deep engagement with such premium audiences highly attractive.

Critics also say Ocado has only a fraction of the UK grocery market and that already dominates the sector.

For sure, business scale counts, but desirable profits are also possible with well targeted premium propositions. Not everybody wishes to shop online at Tesco, just as not everybody wishes to shop in a Tesco store. The Ocado IT infrastructure is built entirely to its needs and the company is becoming increasingly sophisticated at taking money from suppliers in return for access to its audience.

“I suspect the true long-term value of Ocado will come from its close affinity to its target audience”

I suspect the true long term value of Ocado will come from this close affinity to its target customer and how well it is able to understand and market to them. Data is king and Ocado has that in spades.

It is not so long ago that the Clubcard powered Tesco and Ocado has learned this lesson. Ocado should therefore surely be valued with a different set of metrics to other grocery retailers.

It is also worth remembering that Ocado has yet to really venture beyond selling groceries. I am sure that AB households will be buying much more from the brand in the future. For many, that process may begin by buying shares in the company itself.


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