Online supermarket Ocado reported impressive results on Tuesday, putting pressure on
and other rivals in the U.K. e-commerce grocery space.
The U.K. grocer also gave early indications of success following the launch of its joint venture with
Marks & Spencer
(M&S), one of the U.K.’s grocery giants and a historic bricks-and-mortar brand.
stock rose close to 6% in London trading following the results, with Marks & Spencer shares also rising more than 5%. Shares in
grocery supplier for its U.K. business, dipped slightly in morning trading.
The back story. M&S paid Ocado £750 million ($967 million) last year for half of its retail business. While Ocado has historically made up only a small share of the British grocery sector, its unique technology and roboticized warehouses have driven its market capitalization to over £17 billion. It now stands as Amazon’s key competitor in a cutthroat British grocery space that is shifting online.
That shift has been accelerated by the coronavirus pandemic, with Brits stuck at home increasingly turning to click-and-collect and home delivery options for groceries. The sector has seen massive sales growth and a drive to innovate, as grocers fight to capture the surge in consumer demand. Ocado signed an exclusive partnership with U.S. supermarket chain
Read more:Amazon’s Grocery Partner Saw Profits Hit by Covid Costs. Here’s Why it is Still A Strong Stock.
What’s new. All eyes were on news of the M&S venture in this update. Ocado said that, since Sept. 1, customer demand for the new range has driven an increase in the number of products customers buy and strengthened forward demand. The weighting of M&S products in the average basket is higher than it was with its previous partner Waitrose before the switch, which the company views as another indication of positive customer reaction.
The financial results for the third quarter of 2020—the 13 weeks to August 30—don’t include overlap with M&S’ involvement with Ocado, but nonetheless point to strong performance as the pandemic drags on. Retail revenue grew 52% compared with the same period last year, to £587 million, with average orders a week up nearly 10%.
Plus:Kroger Partner Ocado Sees Surging Demand, Sending the U.K. Online Grocer’s Stock to All-Time Highs
Looking ahead. Data from market research firm Kantar suggests that U.K. grocery sales rose nearly 11% in the 12 weeks to Sept. 6, which indicates that Ocado is outperforming its peers. Ocado’s results and confident guidance regarding the M&S venture isn’t just good news for investors: it significantly ups the ante in the fight for the online grocery space that technology giant Amazon is encroaching into.
In a report released last month, Credit Suisse analysts reported that a concern for the expansion into online grocery is that it tends to be more dilutive for retailers’ margins.
Ocado and Amazon both present different and innovative business solutions in the fight for e-commerce grocery. Ocado’s results suggest it shouldn’t be counted out against big tech.