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Summary
- Aided by the recent shift in consumer preference to online shopping Ocado is now valued at close to £5 billion, while market leader Tesco’s market capitalisation stands at about £21.5 billion.
- The new JV that Ocado entered into last year with M&S, which started operation earlier this year has aided the growth
- Associating itself with a big brand like M&S gave the company an edge over its competitors
Ocado, the largest online grocery selling company in the United Kingdom, is very well on the path to becoming the most valuable retailer in the United Kingdom. Ever since it launched the operations of Ocado Retail Ltd, its cash registers are on fire. The said company which was formed last year as a joint venture between Ocado Group Plc and Mark & Spencer Group Plc so far has turned out to be a highly successful endeavour. Aided by the recent shift in consumer preference to online shopping due to the pandemic, Ocado is now valued at close to £19.5 billion, while market leader Tesco’s market capitalisation stands at about £21.5 billion.
The strategy to switch from Waitrose to M&S
At the heart of this sudden pace in revenue growth is the new JV that Ocado entered into last year with M&S. Previously the company had an agreement with Waitrose, for whom Ocado sold their branded products, and which came to an end in 2019 when M&S bought a 50 per cent stake in the company for a consideration of £750 million. However, both parties then decided to form a new entity called Ocado Retail Ltd to retail M&S merchandise using Ocado’s platforms.
The new venture that started serving customers since 1 September 2020 is being well received in the marketplace compared to the company’s earlier association with Waitrose, as they now have a far greater range of products available. Ocado has a present geographical reach to cover 74 per cent of all British households.
Pandemic led online grocery boom aids the growth
The outbreak of the pandemic has a major role in the success of this new joint venture. During the lockdown, when people were not able to go out of their homes, there were solely dependent on Online grocers to keep themselves provisioned. Even after the lockdown opened, most people preferred to continue to shop online and stay safe rather than go outside and catch the infection. Ocado has a highly evolved infrastructure, which had been delivering good performance over the past twenty years it has been in business. Associating itself with a big brand like M&S gave it an edge over its competitors, which seems to be the reason for this stupendous success, it has been able to achieve in the recent past.
Given the continuing state of affairs on the pandemic situation, it is likely that online retailing will continue to be in favour. Hence, this new JV is likely to go on to see new highs over the next few quarters as well.
Ocado Retail ltd Q3 performance
Ocado Group plc came out with the Q3 trading statement of Ocado Retail ltd on 15 September 2020 for the period ending 30 August 2020.
The retail revenue of the company to the 13 weeks ending on 30 August 2020 was £587.3 million compared to £386.4 million recorded during the same period last year, registering a growth of 52 per cent. The average orders per week during the 13 weeks to 30 August this year was 345,000, whereas for the average orders per week was 315,000, which was a growth of 9.6 per cent.
The company is fully on track to increase its capacity by 40 per cent through 2021, and for the full year this year, it has given a guidance of delivering an EBITDA of at least £40 million for Ocado Group.
Also read - Retailers adopt a 5-pronged strategy to fight Covid-19 crisis: focus on TSCO, SBRY, and MRW.
Stock market performance of Ocado Group Plc
Over the past five days, the stocks of Ocado Group Plc have shown a good performance at the London Stock Exchange. On 10 September 2020, the stocks of the company opened trade at GBX 2,651.00 and on 14 September 2020 a day ahead of the results the shares closed at GBX 2,353.00, while on 15 September 2020, the stock opened at GBX 2,500.00, registering a positive gap of 6.2 per cent. The stocks have been on an upward trajectory, on 16 September 2020 (GMT+1 2.06 PM) the stock is trading at GBX 2,656.23 registering a growth of 1.85 per cent against the previous day close.
(Source – Thomson Reuters)
Ocado Group Plc (LON: OCDO) is one of the largest online grocery retailers, domiciled in the a United Kingdom.
Stock Market performance of Mark & Spencer Group Plc after the result release
The shares of Mark & Spencer Group Plc (LON:MKS) have also performed well over the past five days. On the day, the results of Ocado Retail Ltd were released the shares of the company jumped 2.83 per cent. On 16 September 2020 (GMT+1 2.06 PM), the stock is trading at GBX 110.80 registering a growth of 1.43 per cent against the previous day close.
(Source- Thomson Reuters)
Mark & Spencer Group Plc (LON:MKS) is one the United Kingdom domiciled multinational retailing company and one of the country’s most popular brands. The company retails clothing, home products and food products.
The shares of the company trade in the main market segment of the London Stock Exchange with the ticker name MKS. The shares of the company are also the components of the FTSE 250 index.
