Credit: Ocado

Ocado needs to find an international partner - and fast

The online supermarket is at risk of disruption if it can't make its new strategy work.

by Jack Torrance
Last Updated: 25 Jan 2016

Ocado’s latest figures, released today, look pretty solid.  The online supermarket’s gross sales were up 15.3% to £252m in the 12 weeks to August 9, and average orders per week were up 16.6%.

But it’s not Ocado’s own online shop that chief exec Tim Steiner needs to worry about. The company has shifted its focus towards being a white label service for other supermarkets to use as a way of providing online shopping for their customers. So far it has only managed to sign up Morrisons as a customer, but it has been on the lookout for international partners for a while now. 

Today’s announcement didn’t make any explicit mention of these ambitions, though CFO Duncan Tatton-Brown told reporters ‘We’re still targeting to sign [a partnership] this year.’ Investors will be hoping such a deal is forthcoming, as Ocado has plenty of threats on the horizon.

Waitrose, whose nose was put out of joint by the Morrisons deal, could consider terminating its longstanding supply agreement with Ocado in 2017, after stepping up its own delivery service with the opening of a major distribution centre back in March.

Its future with Morrisons seems a little clearer. Though the supermarket’s previous chief executive Dalton Philips signed up for a 25-year deal, new boss David Potts has shown he isn’t afraid of rocking the boat. But Tatton-Brown was keen to quell rumours of a potential split this morning, telling the Guardian that Morrisons would not be able to launch its own online service because of its obligations to Ocado.

The launch of Amazon Fresh could prove problematic though. The tech giant’s grocery delivery service is expected to launch in the UK in the next few months. Though its roll-out into other countries could encourage existing retailers to sign up to the white label service, Amazon's low prices could tempt customers away from Ocado’s own website in its home market.

There are new insurgents in the mix too. Ocado’s business model was cutting edge in 2000, but the tech-savvy posh pound could be chipped away by the likes of Hubbub, a startup that lets customers buy online from local artisan food shops. That’s only available in some parts of London for now, but it’s easy to see how it could catch on with yummy mummies from the Home Counties to Cheshire –  a key part of Ocado’s customer base.

With established deals looking shaky and new competitors waiting in the wings, Ocado had better get a move on and find an international partner if it wants to become a global success.

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