Ocado’s long-awaited deal to supply its smart platform technology to a major international supermarket has finally been inked. France’s Groupe Casino will use Ocado’s tech for its automated warehouses, delivery management and shopping interfaces as it seeks to develop its online brand, Monoprix.
Ocado shares were buoyed 21% upon announcement of the news in spite of the fact that the deal is only expected to generate a profit from 2019, at a timid £6-10m. With the increase, the firm’s market capitalisation now stands at £1.9bn.
Doubts emerged about Ocado’s future in September, when Deutsche Bank published a damning assessment of its prospects. Amazon had just entered the retail market with its £8.3bn buyout of Wholefoods and this was seen as a threat to Ocado’s storeless business model.
‘We conclude that after 15 years of operations, we do not believe that its automated picking model exhibits a cost advantage in fulfillment versus store based retailers,' said Niamh McSherry, analyst at Deutsche Bank of the report. ‘Even Amazon has concluded that an existing supply chain built around a store network of scale, is a more efficient way to fulfill and deliver online grocery orders than building a new network of dedicated warehouses.’
This is broadly true: Ocado’s model only really works in urban areas, where expensive warehouses and delivery systems have no shortage of potential customers within their range. Sainsbury’s and Tesco’s click and collect models which are used more in rural areas are something that Ocado can’t replicate.
Ocado’s deal with Groupe Casino shows another future, however. Instead of trying to be the Amazon of groceries (something Amazon itself has so far not achieved), an alternative to supermarkets, it can become a platform for supermarkets.
Ocado’s Smart Platform is hailed as more sophisticated than Amazon’s warehouse counterpart. It’s invested heavily to become the world’s largest online-only grocery retailer, with everything in their warehouses controlled by AI and robots. Grocery 4.0 as it has been coined isn’t just using stacking shelves: robots are picking food, preparing orders and identifying stock gaps in the world’s most densely packed mobile network.
It’s this technology that shareholders are banking on in the hope that this latest deal with be the first of many. ‘The news that a major French retailer has signed an agreement to utilise its software should go some way to swaying investors sentiment more conclusively in Ocado’s favour,’ said George Salmon, equity analyst at Hargreaves Lansdown.
‘While we’ll need to see more deals come through, this development has kick-started Ocado’s transformation from niche British retailer into an international provider of game-changing technology.’
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