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From the results:
New OSP partner signed
We are pleased to have signed a new partnership with Panda Retail Company ("Panda") in the Kingdom of Saudi Arabia to support their ambitious growth goals in a rapidly developing market for grocery e-commerce. Under the partnership, Ocado will support Panda to serve customers online via a network of manual CFCs and stores across the market using the Ocado In-Store Fulfilment solution, underpinned by the end-to-end capabilities of OSP.
If shorters were closing positions the share price would rise as they would need to buy shares. The opposite is happening today, the share price is falling again. Continued understandable expectation of a negative surprise tomorrow driving the fall today IMO...
Ocado will not, cannot, walk away from Marks and Spencer's. M&S own half of Ocado retail. The 2 companies are very intertwined re Ocado retail. Its in both companies interests to work hard on resolving the many issues..
The reality of Ocados current trading is being grasped by the market.
M&S withholding their payment to Ocado is a very poor advertisement for the Ocado grocery shopping model. Ocado retail still has large capacity overhang, Ocado retails warehouses are operating at 75% capacity. Average basket sizes have been reducing over an extended period. No new Ocado retail CFCs are being built for the next few years.
Overseas - Kroger has halted commissioning new Ocado CFCs and Cole's in Australia have delayed their Ocado CFC go live by a year.
It points to profits coming further down the line than expected putting pressure on Ocados finances. New contract signings re grocery have slowed, understandably given the underperformance of Ocado retails own operations.
I expect the Ocado management to be positive this week in presenting their results. I also expect though that the market will see through the empty words, note the ramping up of costs and extend Ocados current depressed share price..
Edtheeuph,
You were asking where my figure of Ocado retail operating at 75% capacity came from? This figure was reiterated again today by Ocado management. The below is from Reuters today..
"LONDON, Jan 16 (Reuters) - British online supermarket Ocado Retail is operating at about 75% of its capacity and does not expect to open any new robotic warehouses in the UK for two to three years, its boss said on Tuesday.
Ocado Retail, a joint venture between Ocado Group and Marks & Spencer, did not have enough capacity to meet consumer demand at the height of the COVID-19 pandemic. Now, by contrast, surplus capacity represents a short-term cost to the business."
Very average results from Ocado retail today. When taking food inflation into account the figures look very mediocre. As outlined previously Ocado retail are trying to fill their excess capacity by reducing food prices. This though reduces margin and leads to the below, as taken from the results release today.
"Revenue growth is likely to be impacted by lower growth in average selling price however, as we invest in value".
Thus the flat line reaction to the results today by the market..
My expectations are that costs are still weighing heavily on Ocados retails operations. Sales have been increasing. However this sales increase is being driven by the lowering of prices, eating into Ocado retails margin. With Ocado retails CFCs currently running at 75% capacity it results in a very high current fixed cost for Ocado retail operations..
There will be high volatility in Ocado shares (as there has been for many years) until the company becomes profitable. Latest estimates are that will be in 2026. Until then the wide spectrum of market views ensures lots of friction in the share price. IMO there's more downside to come caused by the dysfunction in Ocados current operations, as previously outlined, leading to a lack of further new grocery solutions signups..
The Ocado reimagined tech is ready now for anyone ordering. Kroger are not ordering it currently. Tim Steiner has acknowledged it's a big issue. He's trying to convince Kroger to end the impasse and commission more Ocado CFCs..
The recent McKesson deal is a positive for Ocado however the bigger issues remain.
Kroger halting the commissioning of further Ocado CFCs. Ocado developed current CFCs delayed and over budget - Coles first CFC has doubled in cost and opening date has been delayed by a year. Ocado retail in the UK is at only 75% capacity.
These issues continue to heavily weigh down the share price. IMO the share will be sub £5 again without further news..
Yes Nomlongu, more items on flash sales, prices reductions across the board at Ocado retail to entice new customers to buy/ existing customers to buy more. These price reductions are keeping the volume of orders flowing however they are eating away at Ocado retails margin. More orders, less profit per order as customers buy smaller baskets of cheaper goods.
It is one of many red flags/ warning signs at Ocado group currently which are not fully priced in yet imo.
Yes, far easier to get an Ocado retail delivery slot this Xmas.
Demand has been stable from Ocado retail UK customers. Broadly speaking more customers are ordering less goods which equals a small increase in demand. The big issue for Ocado retail is they have a lot of over capacity having invested hugely in the pandemic. They projected that the pandemic online grocery trends would continue so they invested heavily in new CFCs serving a broader customer base across the UK.
The actual demand increase has been far lower so there is a lot of excess delivery capacity which is expensive to service and maintain. Ocados CFCs deliver good returns when performing at capacity. If there's a lot of excess capacity the Ocado delivery model returns are crimped. Marks and Spencer are not happy currently with the underperformance of Ocado retail.
The share price is down due to Ocados underperforming solutions.
Kroger, Ocados biggest customer, has paused commissioning any further Ocado cfcs. This pushes profits from further commissioned CFCs further into the future. Coles CFC in Australia has doubled in build cost and has been delayed by year. ICA, Ocados Swedish partner is closing one of its e-commerce warehouses in pursuit of a more local strategy.
All these factors are putting a strain on Ocados finances and the signals are that current customers are cooling their interest in Ocados solutions which in the main are based around centralised CFCs with associated high fuel costs in distributing goods to customers.
A takeover of the company is v unlikely and additional customer signups to Ocado solutions look set to be at the low end of forecasts..
The current downwards share price move has more to go imo. Kroger, Ocados biggest customer, has paused commissioning any further Ocado cfcs. This pushes profits from further commissioned CFCs further into the future. Coles CFC in Australia has doubled in build cost and has been delayed by year. ICA, Ocados Swedish partner is closing one of its e-commerce warehouses in pursuit of a more local strategy.
All these factors are putting a strain on Ocados finances and the signals are that current customers are cooling their interest in Ocados solutions which in the main are based around centralised CFCs with associated high fuel costs in distributing goods to customers.
A takeover of the company is v unlikely and additional customer signups to Ocado solutions look set to be at the low end of forecasts..
Personally I still see Ocado shares as being overvalued. The current Ocado Coles CFC build has been delayed by a year and there has been a doubling of the build costs. Other grocers will see these developments and be wary of signing up to Ocados delivery solutions.
Kroger have stopped commissioning any further CFCs until they see the benefits of those that have already been built. Increasing costs are likely to weigh heavily on Ocado as new CFC contracts dry up and existing cfc builds are delayed..