Why Ocado failed to deliver
Until now, Ocado has been an online supplier of groceries in vans with a high reputation. Now it is a stockmarket vehicle with a bad reputation. Will the poor opinion of Ocado in the City affect its performance in the country?
The company had hoped to float at up to £1.4bn, slashed that to £936m when investors proved unimpressed, and saw its value plunge below £850m on its first day of dealing – and despite existing shareholders buying much of the equity on offer. Founders who had intended to sell ended up buying to shore up the price.
Ocado is a victim of its own self-delusion. Perhaps it engaged eight different investment banks because it realised selling would be difficult, but the effect was to prevent those eight big banks from offering independent advice on the offer. The board thus shielded itself from adverse comment. It became like Hans Christian Andersen’s emperor asking his fawning courtiers about his invisible new clothes.
Ocado was founded by Goldman Sachs bankers and they clearly shared the unrealistically optimistic view of the advisers they hired. The criticism came from small brokers – whose opinions could be dismissed because they were small.
It may be that the critics are wrong and that Ocado is a modern dot.com about to become the Apple or Amazon of tomorrow, but if you are floating now you have to listen to today’s views. And the view is that Ocado is a loss-making company that is not the market leader and which needed the flotation proceeds simply to remain afloat. Some £200m will go on a warehouse essential for its expansion: £15m will go the banks that misled a board that was, admittedly, easily misled.
Buying groceries online may be a fast-growing market and may even become the norm for most households, but there is no guarantee it will be Ocado that they log on to. And while the supplier of Waitrose goods has benefited from an upmarket image, if the disaster of the flotation infects customer perceptions, that growth may suffer. Shoppers like to be associated with success – and the flotation was a failure.
July 22nd, 2010 at 12:41 pm
Well I’ve tried both online shopping and ’scan and shop in store’. Of the two I find the latter more convenient. So I don’t see where the growth comes from. Some time in the future, when you can tour a 3D version of your local store and see what is on the shelves, can guarantee that what you have selected (exact brand, size, price- no substitutions or missing product) arrives, and arrives within, say an hour, then I might be tempted to try again, but I suspect my preference for seeing what is available before i buy (so much fruit is rubbish when you look closely at it, and i like to select my cut of meat) will be an issue even then.
July 23rd, 2010 at 4:40 pm
Re Andrew’s comment @ 12,41, couldn’t agree more. Not only that, the “use-by” dates are invariably very close when the goods are delivered. What am I going to do with a 4 pint bottle of milk that goes off the following morning? Little things - but enough to stop me ordering again!
July 28th, 2010 at 2:40 pm
I’ve tried the online offerings from Asda, Tesco, Sainsbury and Ocado/Waitrose. Ocado was easily the best in terms of a much broader range of products and far less subtitutions. Delivery times are excellent - although I have to say Sainsbury are pretty impressive on that front (sometimes they even deliver early)
My time at the weekend is far too precious to spend wandering around a supermarket, so I’ll continue to shop online (with Ocado for the moment) as I have done for years!
July 29th, 2010 at 12:23 pm
I have to agree with Jeremy. Ocado do provide a great service. Contrary to Simon’s view I have found that I am supplied with products with a long “sell by” date whereas when buying in store I have frequently dropped my concentration and picked up something that is due to expire the next day. I receive very few substitutions with Ocado and there is always the option to hand them back to the driver and have the amount credited back. I agree with Andrew that it is better if you can see the products before you buy them but that benefit is (to me) far outweighed by the ability to shop from home.