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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..

Swanley,

That's the end of day uncrossing trade. It's a bookkeeping entry, it's not a buy trade..

It'll be back at 1950p soon :-)

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..

Barclays cuts Ocado to 'underweight' (equal weight) - price target 430 (680) pence

Can you provide a link to the article?

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..

This would give more competion for Ocado retail UK and result in less probability that Amazon are seeking to takeover Ocado group..

https://www.theguardian.com/business/2023/oct/08/waitrose-in-talks-with-amazon-over-online-grocery-deal-says-report

The third main driver of Ocados share performance is Ocados own business model and performance. With a lack of current new overseas solutions deals, underperforming Ocado retail UK and doubts about further expansion of it's tech by Kroger it results in a downward slide in the shareprice.

Ocados online grocery delivery model consumes more fuel than others, as it chooses predominantly to deliver from large centralised CFCs . With the oil price highly elevated, and now a new middle east war, Ocados online grocery delivery model is becoming increasingly costly...

If anyone orders Ocado cfcs today then the reimagined Ocado kit can be included. That issue isn't holding back partners from ordering new CFCs. An extract from the 2022 reimagined Ocado results release:

"partners ordering standard-sized CFCs today (early 2022) for delivery in H2 2023 will have the following features enabled: 600 Series bots; the 600 grid and Optimised Site Design; Automated Frameload; On-grid Robotic Pick; Ocado Swift Router; and Ocado Flex."

Kroger taking over Ocado is always a possibility. They already hold 5.675% of Ocado group via an acquisition deal signed upon becoming an Ocado solutions customer.

Is it likely they will take over the whole group? Personally I believe not. As previously explained Kroger have many online grocery delivery partners, Shipt, Instacart etc. They sensibly have their bases covered in terms of being able to adapt to the future of online grocery delivery. It was rumoured early this year that Kroger were slowing down their decisions to rollout new CFCs other than those already committed to. I can't see that Kroger would be attracted by the current huge operating risk and cashflow needs of owning Ocado. Kroger's shareholders would be very reluctant to take Ocado onto their balance sheet. I believe they will continue to be a close collaborator but only that...

Takeover hopes have lifted the Ocado share price up over the summer. Lack of any substance to those rumours will bring the share price back down. Continued cold winds are blowing in the worldwide retail environment. Oil prices are highly elevated, increasing costs to Ocado currently and weighing on the attraction of its solutions operating model. An absence of significant new contracts leads the share to be sold down...

Bayobach,

It's been said there are clauses in the Kroger Ocado contract whereby Kroger have committed to build a certain amount of CFCs by a certain time or financial penalties are due to Ocado. I believe we are past that initial commitment now.

Kroger use a number of partners to deliver online groceries, Instacart and Shipt for example. They have also partnered with other robotics firms for home delivery, for example Nuro.

Kroger have their fingers in many pies re online grocery delivery. Which is a sensible approach given the future growth, demand and structure of online grocery delivery us unclear. Kroger are very committed to Ocado as they have built out many Ocado powered CFCs and are a major shareholder in Ocado. However they have other strong partnerships in the online grocery tech space. It was rumoured early this year that Kroger were slowing down their Ocado CFC build out/ expansion programme.

Thanks for the info re autostore joseywales and thanks bayobach for locating the supporting article.

That article is from Jan 2023. Though we haven't discussed it on this chat board the info will be known to analysts and major investors. One of the drawbacks of Ocado solutions model is they primarily sign country exclusive contracts. They've signed with Kroger in the US, so they can sign up with no other grocers in the US. The contract with Kroger doesn't allow this. Outside grocery there's opportunity to sign with others but within grocery once they sign to an overseas partner then they can sign with no others in grocery in that country. So Ocado cannot run a grocery trial in the US with any others as autostore has done, unless Kroger agreed to changes in the contract which is unlikely as Amazonfresh is a direct competitor.

Amazon have a range of robotics firms they are involved with or could utilise in grocery. An Amazon takeover of Ocado remains unlikely and the recent takeover talk has yielded no credible evidence to suggest otherwise. The June and July price rise takeover talk hype is rightly reversing.

Conditions for Ocado retail are very adverse. A lot of price cutting is taking place in an attempt to gain market share but this is eating into margins considerably. As the recent Ocado retail results showed growth, given the huge financial investment over the last year, remains very slow with existing customers spending less again, a trend that goes back many months. We could be about to go into a recession in the UK. The Ocado delivery model is heavy on fuel costs as vans deliver to houses from a central hub. These fuel costs are again rising greatly.

IMO its very justified that Ocado has fallen to current price levels and I see more probability of further falls than upside..