Ocado Group Plc is the world’s largest online grocery retailer. The company has signed a deal with one of the Australia’s grocery retail companies, Coles. Coles is a full-service supermarket retailer and is one of the Australia’s largest retailer. The company have operations all across the country. It operates more than 800 supermarkets, 712 express petrol stations, 911 liquor stores and more than 2,500 retail outlets. The company generated sales amounting AUD 39.4 billion equivalent to 22 billion pounds for the year 2018. This is among the fifth major overseas deal in last 18 months. This deal is the response to the online competition all across the globe by food retailers.
As per the deal agreement the Ocado’s technology and software department will build Coles online business in Australia. As a result of which share price of both the companies went up. Ocado’s shares were up by 6 per cent in London to a record high. The stock of Ocado had gone up by around 136 per cent over the last year. Coles shares were also up by 2.2 per cent.
The Coles will have two robotic delivery centres or CFCs (Customer fulfilment centres). These centres will be operational in coming next four years, one in Melbourne and other in Sydney. For Ocado, this is their first deal since a fire accident destroyed its biggest warehouse in Andover, Southern England, last month.
According to Ocado’s Chief Financial Officer Duncan Tatton-Brown, it was helpful to broadcast a deal after the fire incident as it would give evidence that the company’s business was not affected by the Andover fire. Deal with the Coles will be same as previous partnerships company had entered into. The company will get its payments in phases during the signing and development phases. Ongoing fees will be charged based on the sales completed and installed capacity in the CFC’s & service criteria.
The total outstanding market capitalisation of around GBP 9 billion had been driven by the technology business of the company. Ocado technology business provides with the needed structure and software to international retailers to develop their own online grocery business to compete with the other major giants in the retail grocery sector such as Amazon etc.
Ocado had struggled to post a profit for many years since its incorporation. But since late 2017 company had signed many international deals that had helped them to grow their presence in the industry. The company had signed deals with Kroger Co in the US, Casino in France, ICA Group in Sweden and Sobeys in Canada.
Last month Ocado had announced a retail joint venture deal worth 1.5 billion Pound with Marks and Spencer in its home market. Ocado is known for its best in a class proposition which is built upon year of research and development and technological expertise. The company had positioned it well as compared to its competitors which help them to outperform in the UK and as well as in overseas.
Coles, on the other hand, is already a market leader in Australia’s online grocery retail industry. The company is able to generate annual sales of more than AUD 1 billion from its online operations. Coles online division will be serving customers in Australia’s urban areas by using the Ocado’s CFC’s to fulfil the orders in large areas and will use Ocado’s Store pick software for customers living in less populated areas. As per Coles, it will make a capital expenditure including the upfront fee to Ocado will be around AUD 130 to AUD 150 million in the next four years period of construction and development.
The deal between Ocado and Coles has helped the companies in raising respective market values as shares of both the companies surged higher post the announcement. This deal helped Ocado to prove that it is not affected by the fire incident that happened at their biggest warehouse, whereas for Coles, this deal can help them in becoming the market leader in the Online grocery industry in Australia.
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