Over the course of Ocado’s 19-year history, Management Today has visited the company three times. The first encounter in the very early Noughties was with a start-up run by three ex-Goldman Sachs brokers – Tim Steiner, Jason Gissing and Jonathan Faiman – who attracted scorn from the rest of the grocery industry.
"Webvan.uk," sneered the cynics. Terry Leahy of Tesco dismissed them as a "charity" because they gave money away. "Tesco now looms over Ocado like an elephant over an ant," Management Today wrote, "ever threatening to come down on it with a massive thump."
Dressed "like Sunday bankers in jeans, jumpers and chunky big-brand watches", the three were unlike any other grocery bosses: "Loquacious, mostly incautious and genuinely determined to make you love their baby as much as they do."
By our second visit in 2013, one of the three – Faiman – had jumped ship and things were more serious. "Ocado," we noted, "has matured from an attention-seeking toddler that irritated many in the industry and failed to make a profit, to an increasingly self-confident teenager, enjoying being taken more seriously by grown-ups – yet failing to make money."
There were clearly already strains in the supply relationship with long-term partner Waitrose, which Gissing some years earlier had described as "a pain in the arse". Ocado had done a 25-year deal with Morrisons, enabling it to start grocery deliveries, that took Waitrose utterly by surprise.
"I think it’s ironic that at one point John Lewis owned 44 per cent of our business [this was handed to its pension fund, enabling the two businesses to compete, and was later sold]. Now the most vibrant part of their operation is johnlewis.com," said Gissing. "They could have gone from 44 per cent to 49 to 51 and eventually owning 100 per cent of us. And they would now own the leading online grocery business, which they could plug jl.com into. Then they’d have what [Amazon founder] Jeff Bezos dreams of creating in the future."
By the time of our third visit, earlier this summer, Ocado had shaken off the exuberance of its youth – it is now a FTSE 100 company with a capitalisation of £8.5bn. It had floated on the market at 180p in 2010 and a rollercoaster price ride ensued, during which there were rumours Amazon would pounce. The shares now stand at a remarkable 1200p. Gissing is spending more time with his family and Steiner is now the sole remaining member of the founding triumvirate.
The conscious uncoupling from Waitrose will be complete in 2020 and Steiner has just pulled off the sweetest of deals with ailing Marks & Spencer, which is now worth half Ocado’s value on the market. M&S, which has lacked a grocery home-delivery service, will pay Ocado £750m for a 50 per cent share of the new Ocado.com joint venture, which will begin trading next September. It was clear who the markets believed had the better deal when M&S shares dived 8 per cent and Ocado’s went up 6 per cent. Deals, eh? You can take the boy out of Goldmans…
What’s more, Ocado is no longer an online grocer. It is a tech play. Steiner discovered his most valuable asset was knowhow. The company employs 1,900 software and hardware engineers and has been granted 65 patents with another 100 pending. It has sold its tech savvy to grocers the world over and it is in the process of building 20 huge "sheds" (customer fulfilment centres) for Kroger in the US, and is working with Coles in Australia and Casino in France. "We built four in the first 19 years – that’s the order of magnitude of growth you’re now looking at," says Steiner.
"If you wanted to be grandiose, you could say it was a little bit like what Google did with Alphabet, putting the core business of search and AdWords into one division, and then having Alphabet exploring the future," Paul Clarke, Ocado’s chief technology officer, said in a recent interview.
Since its birth, Ocado has been based at the former de Havilland aerodrome in Hatfield, Hertfordshire. Hatfield was one of the new towns built after the Second World War on a dream – and part of that vision was the shopping centre. But retail has moved on. Online shopping has left the UK high street in ruins. Retail has a new, digital look.
On the route from the railway station to Ocado’s headquarters, the Hatfield shopping centre looks sorry for itself with many boarded-up shops. The window display at discount store Savers shouts that you can pick up a litre-and-a-half of Lambrini for £2.89. You can’t buy the perry brand at Ocado and if you put Lambrini into the search engine, you are offered Little Leaves lamb’s lettuce for 79p or Lily’s Kitchen Organic Lamb Supper dog food for £1.30. Far more 2019.
There are some well worn demographics at work here. Ocado has frequently been characterised by many as rather la-di-da. Very southern and middle class – as the Twitter feed Overheard in Waitrose reports: "Oh, do put that papaya down, Orlando!"
Steiner disputes this. He certainly isn’t snooty. "Our customer base is normal and far more democratic than people think. It has normalised over time," he says. "We don’t just appeal to those at silly income levels. Sure, we sell some premium uber products but people like to treat themselves from time to time. And, anyway, cooking high-quality food at home for a special occasion is still dramatically cheaper than eating poor quality food out."
It’s also true that while other supermarkets have shoppers, Ocado breeds disciples. Its followers love the fact that while Sainsbury’s and Tesco delivery vans career around, chasing the clock, an Ocado wagon is sedate, never getting above 28 mph.
Ocado has always been in the news – there’s always something to report on. This year it was a spectacular fire at its new distribution centre in Andover, which burned for four days, caused £110.3m of damage and hugely dented annual profit figures. Then it was the news of the final severing of the link with the John Lewis Partnership and Waitrose.
Steiner himself is no stranger to the headlines. He’s now public property in every sense of the expression. Steiner went through a difficult and very public divorce from his wife Belinda, details of which were plastered all over the Daily Mail and The Sun – "Share The Love! Ocado boss Tim Steiner now shacked up with Polish lingerie model used his own shares in firm to cover £68MILLION divorce," yelled the latter.
He’s treated himself to a £25m yacht, Silver Fox, which can’t be much shorter than Phillip Green’s. And he was seen at the now notorious Presidents Club dinner. "Ocado Boss condemns gropers…" was the headline for that one. He’ll be staying at home with a glass of Armand de Brignac Champagne Rosé Ace of Spades (the most expensive bottle in the Ocado cellar at £335 a bottle) the next time such an invite lands on his mat.
As the last man standing of the founding trio, Steiner’s patience and determination has paid off. He entered the Sunday Times Rich List with an estimated worth of £300m and was made that newspaper’s Business Person of the Year last year. Those who kept the faith have been handsomely rewarded – Stuart Rose, who has chaired the company since 2013, made £7.36m selling some of his shares in May. The company is now bursting at the seams across several huge buildings and is taking space in London.
Steiner looks older, has less hair and is more serious than on our previous two visits. There isn’t much in the way of wit and banter. He’s probably the only FTSE 100 boss who wears a T-shirt and jeans to the office but hanging from his neck now is a pair of reading glasses. As a founder, he’s an unusual FTSE 100 CEO – as WPP’s Martin Sorrell and Peter Hargreaves of Hargreaves Lansdown were. And his outlook sets him apart.
"I play for the long term. I’m less worried about quarterly or half-year ends – not flippantly uninterested – because whether I make £10m more or less this year is less important if I might make £100m in 10 years’ time and for 100 years," he says.
"A weakness of public companies is that you get hit in most years by some exogenous event. But you still must hit the numbers. So you cut R&D, you reduce the head count, pull back on marketing to compensate. This makes no sense for me. We can and must carry on innovating. We are an innovation house."
Steiner is surely right when he suggests that the pain on the high street and in grocery is far from over, although he acknowledges that there will always be someone who derives pleasure from driving to a supermarket and browsing the shelves before packing all their own groceries into reusable bags. "I don’t think my 15-year-old daughter has ever been to a supermarket," he says. "And each year 1.5 per cent of the traditionally shopping elderly drops out to be replaced by the young. The channel shift will not stop. Plus our technology will keep improving."
Did he think there were any risks in ditching Waitrose for M&S? Sceptics have pointed out that Waitrose is regarded as far more premium and an HSBC survey suggested as many as 20 per cent of Ocado customers might balk at the change of supplier. "It’s not true," he replies. "We did our research. The new combination will allow us to grow faster." Ocado.com will have a new CEO and Steiner will chair the business.
But what about a possible tech crash, given some of the crazy valuations of jam-tomorrow companies such as Uber? Might that take Ocado down a peg or two?
"We know how to make money from this business," Steiner says. "There are different types of tech business. Some don’t even know what their business model is. We most definitely do." And Steiner is fascinated by tech and its potential. He’s restless and always on the hunt for a new idea to pursue. The latest thing is vertical farming. As the cost of LED lighting has come down, this method of growing indoors in carefully controlled conditions by stacking product in shelves now has real potential.
"Vertical farming means you can grow the tastiest, most nutritious food with no pesticides or fertilisers," he says. "In a world that is neither stable nor peaceful, this is a good idea." Ideally Steiner would have his farms, in which he’s invested £17m, right next to distribution centres to cut carbon emissions from transport – no more 38-tonne trucks traversing Europe with baby gem lettuce from Almeria.
On the subject of Europe, one cannot allow Steiner to go without hearing his thoughts on Brexit. And they aren’t what one might expect.
"I wasn’t in favour and was a Remainer. There are a lot of unknowns but I’m not sure if we leave without a deal it’s as bad as some people suggest." Really? "It would be very hard to rerun a referendum saying, ‘We think you the electorate didn’t quite understand the question first time round.’"
But what about his business, isn’t food among the most vulnerable to no deal? "A lot of our food comes from the EU. The French and Spanish will have to make it work. You cannot stockpile beef, let alone lettuce. The sheer quantities make that impossible. And I don’t, by the way, wish to sell chlorinated chicken. I want the same food safety and standards as before. But whatever happens, I hope we remain trading with the EU and the rest of the world on sensible terms."
Steiner is a pragmatist and he’ll be hoping that freedom of movement for EU nationals isn’t impaired because he will continue to employ very large numbers of them in his sheds until the robots take over completely.
"Maybe we shouldn’t have put the question to the population in the first place but we simply cannot spend another five years debating it," he says. "Japan has been dealing with the same issue and not resolving it for decades and we cannot afford to do that. But I’m glad I don’t have to find the answer. I’m just here to run our business. I worry about robots, customers, software. That’s quite enough for me."
This article appears in the September 2019 print edition of Management Today
Image copyright: Duncan Kendall