Ocado shares surge over Amazon bid speculation

Stocks of British online grocery retailer Ocado soared by 32 percent on Thursday, following rumours it could be the target of an Amazon bid.

Stocks of the UK firm, which have fallen since they reached a record during the boom in online shopping caused by the pandemic, surged after it was reported that “technology giants” including Amazon could be interested.

In the last two years, investors have become less interested in Ocado as UK consumers are squeezed by rapidly rising interest rates. The company’s expansion plans have been halted due to the slowdown. It was founded by ex-Goldman Sachs executives.

It reported in February a £501mn loss before tax for the year. This was the largest loss it has ever had over the past 23 years. The joint venture 50-50 with Marks and Spencer suffered a similar loss.

Ocado’s challenges have made its shares one of the most heavily shorted in the London stock market. IHS Markit estimates that 15.5% of Ocado’s free float is on loan .

Ocado, which had risen as high as 47 percent to 631p before closing at 566.2p (up 32%), closed the day up by 32 per cent. Ocado and Amazon declined to comment.

Amazon is already regulated in the UK as a major grocery retailer. Last year, the Competition and Markets Authority designated Amazon as a major food retailer. It was placed alongside supermarkets like Tesco and Waitrose which typically have sales exceeding PS1bn. It must adhere to certain rules regarding the treatment of its suppliers.

The group is primarily an online retailer but has expanded into physical stores. Andy Jassy, the chief executive of the company, said in January that it was “ready to go big” with brick-and-mortar shops despite closing physical stores and pausing new store openings.

Jassy stated in February that “we’re still in the beginning stages.” “We hope that by 2023 we will have a physical format we are excited about.”

In March 2021, the first Amazon Fresh store in the UK, with its “just walk out” cashierless technology, will launch. Amazon stopped the rollout of its Amazon Fresh stores in August 2017 after opening less than twenty locations. Amazon has opened at least two UK stores that don’t rely on the automated checkout technology. It also closed at least one of their earliest London outlets.

According to Amazon’s most recent quarterly earnings, despite acquiring Whole Foods five years ago for $13.7bn, physical stores account for less than 4% of its total revenue.

Ocado’s shares have fallen by 80 percent since September 2020, when they reached a new high.

The UK’s competition regulator will likely closely monitor any Amazon interest in Ocado. The CMA investigated Amazon’s 16 percent investment in Deliveroo for a long time before clearing it up in 2020. They cited what they deemed to be the “negative impact” the pandemic had on the food delivery industry.