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Well the CFCs ordered by Lotte are being fitted out with it

One of VPs complaints was that the Reimagined tech was not being picked up by partners but when they announced it they said it would not be until the end of 2023 that it would be available for new CFC orders.

This video introducing Reimagined is long but has some interesting content. Specifically the bit about 13 minutes in where they talk about how they set about designing the Series 600 not when Series 500 was still a prototype.

Also according to McKinsey there are 2 big obstacles to warehouse automation. Energy consumption and the need for greenfield sites to accommodate new systems.

The 600 is 80% lighter so takes less power to operate and also the lighter grid required can be fitted to existing sites.

https://www.ocadogroup.com/media/ocado-reimagined/

Yeah would be good to see a more up to date one with the Reimagined tech on show.

Apparently the grids for the hive can now be stacked vertically as they are planning at one of the Korean sites.

Also about 80% of the Solutions revenue is recurring revenue from ongoing fees and the sales cut rather than cash received from development costs.

There is a clear indication in the annual report that they know what have a lot of work to do in terms of getting partners to draw down more modules at existing sites.

I am prepared to give them the benefit of the doubt in trusting that they can make progress with that.

The current SP is a more attractive point to take that bet than earlier this year. For a long term hold that is.

Also with respect to Kroger closing 3 spokes. I think this is actually not that relevant to Ocado.

Ocado run the CFCs and Kroger take care of delivery. From what I can see the spokes are sites set up and run by Kroger to transfer orders made at the CFCs from lorries to delivery vans. So Ocado's involvement with them is limited to despatching orders to them from the CFCs.

The modules at the CFCs will already have been drawn down by Kroger whether these modules are used to fulfil orders within CFC reach or for orders going through the spokes.

You can argue that less spokes could lead to less modules been drawn down at the CFC but I don't think closing the existing spokes will mean a reduction in modules already drawn.

As I understand it Ocado earn from the CFC capacity used as well as in store fulfilment services. They don't have much to do with the spokes.

I am happy to be corrected on this if there's any reference to their tech actually being used at these sites.

All I can see are news articles about Kroger creating jobs in the spoke areas for people to work directly for them.

Just to be clear. The purchase obligation figures don't relate solely to Ocado. They include agreements to forward buy stock etc

Rather than emphasising these figures I was pointing towards their own statement about the likelihood of future CFC orders

In the notes to their financial statement there is a one (note 9) about how the Ocado costs are classed as leases (of the robots).

Their future liabilities to Ocado are recorded as long term debt and seem to be 785m dollars.

From page 46 of most recent Kroger annual report (April 2) detailing Purchase obligations, which are 827m dollars for 2024 dropping to 391 and 360m by 2026.

"We included our future commitments for customer fulfilment centers for which we have placed an order as of February 3, 2024. We did not include our commitments associated with additional customer fulfilment centers that have not yet been ordered. We expect our future commitments for customer fulfilment centers will continue to grow as we place orders for additional customer fulfilment centers".

One of the criticisms Kroger analysts have made are of Kroger's strategy. Rather than just buy tech upfront and then keep all future profits from digital sales they have to share sales revenue with Ocado.

So maybe the Ocado model is not as dumb as people make out. As well as getting the development fees they are setting themselves up for significant revenue streams in the future as more CFCs get up and running. I think this is the point Baillie Gifford are making when they say the business model is often poorly understood.

Lotte could also become a client of OIA as they have non grocery e-commerce business and also maybe in store fulfilment at their sites in Vietnam and Indonesia.

According to this the first Korean CFC is bigger than any of the Kroger ones- their largest was 375k square foot.

https://koreajoongangdaily.joins.com/news/2023-12-05/business/industry/Lotte-Shopping-breaks-ground-on-Ocadopowered-robotic-warehouse/1928264

He confirmed what I thought about the South Korea Lotte deal. SK has the highest online grocery market penetration at close to 30%. Lotte selected Ocado for 6 CFCs and they are a company with a strong background in automation in a country with a lot of highly advanced tech already in place.

Interesting contrast with Japan where online penetration is much lower at around 3%. Can Ocado's partnership with Aeon Next there help to increase online market share? You would think some of Japan's densely populated areas would be ideal for the Ocado delivery model.

As for Autostore they are focused on deploying their tech in smaller fulfilment centres with a much broader spread of sectors. Thanks to the investment in the Reimagined tech, Ocado can now position themselves as direct competitors to them in industries such as consumer packaged goods and pharmaceuticals. The Reimagined kit has brought down the cost and it's modular nature means it can be deployed with greater flexibility.

Off the top of my head it was only about 7-8 years ago that Ocado really turned their attention to selling systems to other grocery. They are projecting revenue from Solutions of about £500m for 2024. If they can increase that to £1bn or more over the next couple of years then the EBITDA contribution will increase greatly. Logistics is not expected to grow and Retail will be unlikely to deliver a margin of much more than 5%.

As Bernstein's William Woods said on the video the market seems incapable of valuing Ocado given the wild fluctuations in the SP. I think the current malaise is down to a mix of things like shorts betting that negative press can generate a death spiral down, the lacklustre UK market that has seen a number of companies either get bought out or opt to list in the US.

Obviously my optimism could be greatly misplaced. For all I know the OIA sales team could be running round like headless chickens with no strong strategic direction. Or they really have already reached the peak in terms of finding international grocery groups willing to sign up to the CFC model.

If you check that Bernstein video I posted he said 10% of investor interest relates to Retail, the real business is Solutions.

Https://markets.businessinsider.com/news/stocks/ocado-group-s-promising-cash-flow-improvement-and-market-expansion-opportunities-a-buy-recommendation-1032676655

This video is very much in line with my thinking from the Bernstein guy.

https://m.youtube.com/watch?v=0wJaTKjCX-Y

Https://www.proactiveinvestors.co.uk/companies/news/1032161/ocado-s-55-billion-non-grocery-opportunity-1032161.html

It's like Kroger are committed to building additional CFCs.

They have put things on pause. If I pause a movie to get a cup of tea that doesn't involve throwing the TV out the window.

They literally seem to be copying the research posted last week on that AI site.

Sorry but in what world does a broker note from HSBC strike a serious blow to a business?

Fluff

Seriously the Reddit forum was made up of disgruntled workers that had lost their jobs.

They were criticising Kroger but what they were saying was in line with what Britain Ladd and others said about the spoke closures.

You can get a useful idea from talking to employees. I asked one of their drivers the other day how many loads. He said 24, which is their efficiency target. If he had said only 10 or 15 then that's a negative indicator.

Not at all. I guess I feel that I have posted too much things that I find of interest but probably not of interest to others.

In seeking out responses to VP I have found out some stuff.

I believe you do have to have the investment case and optimist beliefs pulled apart.

It's just when the same points are made again and again......

Maybe some are happy with imprecise info supplied by VP and think it shouldn't be questioned.

I try to say things that reflect uncertainty by using words like May or Could.

If VP says Amazon have a partnership with Autostore and the reality is that they are just trialling their tech at one location then I am going to keep calling them out.

There is a filter if you don't like me doing that.

No but things like that are interesting. They show that OIA is attracting attention.