M&S looks to revamp Ocado Retail after chair warns there is 'work to do'

"Ocado’s retail delivery business is around 20 years old and the business has never consistently made a profit, on a statutory basis, other than during the pandemic, and then it was unable to scale up fast enough,” Russ Mould, investment director at AJ Bell told City A.M.

And more pungent stuff in the following paragraphs, but pasting more goes beyond fair use.

Ocado remains a mystery to me - it has never made profits yet it operates in the most developed online grocery market. Its technology partnerships have never grown to a point where it has multiple partnerships on a continent. Yet, Ocado believes that they have a winning solution when you attend talks or events where their leadership speaks.

Why do analysts believe that this company will only become profitable in 2026 - that is another 3,5 years away?

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  1. Unprofitable in a developed market. Because Ocado was late to the party, is the only large scale “pureplay”, is only regional, not national, and has always focussed on a more “premium” grocery offer. Simply does not have the “drop density” of their major competitors to minimise last mile costs. Yes their picking is more efficient, but not that much more efficient than existing and evolving mechanised solutions (e.g. product to picker/ASRS), all of which requires a big up front capital investment (property and equipment).
  2. M&S invested because they were the largest non-discount grocery provider who did not have ecommerce offer. (M&S is a “premium” grocer, with Ocado Retail doing the buying for M&S’s less premium alternatives online and in store). Arguably M&S should have partnered with Deliveroo, Getir, or Gopher to pick from their dense store network in cities, and developed a network of food only small dark stores in more suburban locations (c.f. Screwfix). Ocado Retail was a massive help to M&S during the lockdown.
  3. I think Ocado can only become profitable in the UK if they take over fulfilment for a few other retailers (grocery and adjacent), and start delivering mixed retailer routes in white label vehicles or contract our last mile to 3rd parties (c.f. Amazon Logistics). But will M&S let them?

A good reminder that the last mile is the only mile that matters in terms of cost.

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