Ocado was viewed as a symbol of changing consumer tastes when it entered the FTSE 100 in 2006, the same year that traditional retailer Marks & Spencer narrowly escaped relegation.
The roles are expected to reverse this week. M&S will be on top and Ocado is likely to fall out of the UK’s Top 100 Companies index in the quarterly reshuffle. Its valuation has plummeted to around £3bn, from a peak of £22bn, during the pandemic.
Its joint venture partner M&S has also contributed to the decline in the share price. They are fighting over the final payment of their UK-based grocery-delivery tie-up Ocado Retail. It was expected to be worth over £190m. M&S claims it shouldn’t pay anything because its performance is so bad. Tim Steiner, Ocado’s boss and has threatened legal action as a response.
Ocado will make the final decision on its FTSE ranking on 4 June using data from the market. However, based on figures released on Friday, it would need to make a dramatic jump in price to avoid relegation.
This seems unlikely, given the uncertainty that has caused a fall of around 50% in price so far this season to 373p.
Dan Coatsworth, a stockbroker at AJ Bell, describes Ocado as “one the most Marmite-like names in the UK”.
Ocado benefited from the move to home delivery when high streets were closed to control Covid. This convinced many people that the change was permanent. After the pandemic it became apparent that many people missed shopping in a store. The UK’s online orders dropped to 11% from 14% at its peak in 2021.
Specialists in ultra-fast grocery delivery which enjoyed a private-equity-backed boom during lockdown, such as Getir and Gorillas, have rapidly folded in the UK, leaving the field largely to takeaway meal specialists such as Deliveroo and Just Eat – none of which appear to be making much profit. This does not inspire confidence in Ocado’s Zoom fast-track delivery service, which was one of the company’s hoped for growth areas.
Ocado’s pre-tax loss for the year ended 3 December 2023 was £394m, down from £500m the previous year. A fifth of the shareholders voted against the plans to pay Steiner a £14.8m package in April.
Ocado, on the other hand, has been unable to take advantage of the booming demand that occurred during the pandemic or to revert back without suffering major financial losses.
Tesco, Sainsbury’s, and Waitrose, among others, have closed at least some of the home delivery warehouses. They are now focusing on more flexible and cost-effective deliveries.
This year, Ocado has seen a significant increase in sales thanks to its retail partnership with M&S.
M&S boss Stuart Machin recently stated that Ocado’s much-trumpeted Smart Platform technological upgrades, such as new software or robot picking arms for more efficient deliveries, had been “much-delayed”, perhaps further cooling the hopes of the group’s attempts to sell their technology around the globe.
Ocado’s shares also rose during the pandemic as investors saw the company as the UK’s answer for Silicon Valley tech firms, rather than just an online grocery store. Investors had hoped to see more. It has won major customers, such as Kroger in the US and Groupe Casino in France.
Clive Black of Shore Capital, a critic, notes that millions have been spent on R&D for sales that are quite modest. Delays to major projects, like a Coles delivery centre in Australia, has also hurt confidence.
Susannah Streeter is the head of money markets at Hargreaves Lansdown. She says, “Deals for Solutions, its future growth engine are not being signed nearly as quickly as investors had hoped. Ocado charges retailers for using its robotic systems. “There’s still a lot of potential, but the timeframes for growth are more uncertain and this has lowered the valuation.”
Ocado’s anticipated exit from the FTSE 100 only fueled speculation that Ocado would look to list in America instead of the UK. Steiner might find that there are fewer complaints in the US about the multi-million-pound salary deals, but it is still unclear whether this will lead to more people becoming fans of its robots.
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