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"As a long term buy OCDO is a no brainer"

Strongly disagree with your statement chilting. So many fundamental issues occuring at Ocado group currently, just some are listed below..

3 profit warnings for Ocado retail this year. Ocado retails market share is not growing. Ocado retail is currently not making profit. Ocado retail is the most evolved network use of Ocados technology, it is the shop window which it is hoped will attract others to sign up with Ocado Solutions. Currently this shop window is shattered in multiple ways.

No new overseas tech contracts since the Reimagined Ocado launch early this year. In the launch Tim Steiner outlined that more new grocers would sign up to Ocados tech more quickly as a result of the improved tech.

Consumer behaviour trend opting for smaller basket sizes is greatly reducing the profitability of Ocados delivery model - which is based around offering a huge range in order to deliver big basket sizes to customers.

Then there's huge inflation pushing Ocados costs up in every aspect of their business.

I don't believe Ocado will break their banking covenants any time soon, they've recently fundraised. However if no new overseas tech contracts are signed then the share price will slump further. Later on a new fundraise may be needed. Under current market conditions I cannot see additional overseas grocers being attracted to Ocados technology.

HSBC cuts Ocado to 'reduce' (hold)

Current market conditions pushing this share down further. Could well be a fourth profits downgrade this year at Ocado retail before long. Consumer finances will be far tighter this Christmas than last year..

Goldman Sachs cuts Ocado price target to 785 (875) pence - 'neutral'

Credit Suisse cuts Ocado to 'underperform' (neutral) - price target 590 (960) pence

Barclays cuts Ocado price target to 740 (775) pence - 'equal weight'

Depends what economist you choose. Many are saying even with the energy bail out UK inflation is likely to head to 12%. The hot US inflation data yesterday showed that US interest rates will be heading higher sharply. This will put pressure on UK rates. We are likely to see a similarly upwards trend in interest rates in the UK.

Sure, if inflation dips and the war ends then the today's Ocado share price looks great value.

Personally I see persistently high global inflation and the Ukraine war rumbling on for at least a year more. I liquidated my portfolio months ago to be sat in cash. Happy to remain in cash for now as I'm seeing further market dips ahead..

Yes but overseas grocers are under all sorts of cost pressures currently. Personally I see them wanting to spend core funds for the next few years on trying to reduce prices, improve supply chains etc rather than expanding into new home delivery grocery services.

In time home delivery may well be dominant across the grocery market. The current prolonged extraordinarily adverse conditions though I believe will keep blowing Ocado off course, as new contracts dry up and costs rise..

Yes, margins are low in food retail. Other grocers around the world will be looking at Ocado retail as a case study for Ocados technology. They are seeing currently that it is making no profit. These grocers will base estimates around their own volumes etc but they will see how in the UK the discounter supermarkets are rising in market share and they will see that home delivery market share is tailing off.

Similar issues/trends could well occur in grocery retail across the world in this prolonged cost of living crisis. Rice and so many other foods are rocketing upwards in price pushing consumers to seek cheaper lines of stock and boosting the popularity of discount supermarkets.

Energy cap for all in the UK will be in place but energy bills will still be very high this winter. Inflation is high and likely to remain so. Food inflation in particular is very high, forcing consumers to seek cheaper lines of stock or cheaper suppliers.

Ocado has many strengths to its delivery model but its prices to the consumer have never been cheap. Shorters aren't to blame for the fall in the share price. The share price is where it is today for good reasons. Ocado retail, the shop window for Ocados technology offering is making no money. Why are other international grocers going to flock to take up Ocados tech currently?

Re Kroger I believe you will see Ocado CFC fulfilled sales drop off as food inflation in the US remains high. Consumers there following the same pattern as the UK. Focussing on best price for goods rather than best delivery service.

The Ukraine war will rumble on for years in my opinion. Those hoping for Putin to be pushed aside will be disappointed..

The Ocado model is based on the assumption that home delivery grocery demand will exponentially grow. These growth rates have slowed hugely currently to the point where now in the last retail figures Ocado retail did not increase its market share at all in the UK, it remained at 1.7%. This is despite Ocado having none of the capacity constraints it had earlier in the year as CFCs have been built out.

In the same grocery figures Lidl and Aldis sales are growing at a rampant rate despite them having very limited home delivery options. Consumers are laser focussed on price and in this immense cost of living crisis they don't mind going to the supermarket if it means they can save £££.

As mentioned before some online grocery delivery companies are no longer delivering frozen goods as the cost of delivering them outweighs the profit.

This crisis is only just brewing and there is little sign of better times ahead..

Cassandra29,

Ocado retail deliver goods to customers from its customer fulfillment centres. There are 6 or so of these in the UK. Customer goods are transported directly from the CFC to a customers door. This is unlike for example Asda online where your goods are delivered to customers from the local store.

So petrol/electric transport distribution costs are high under the Ocado model. Also Ocado vehicles all have dry ice in them to deliver customer goods at the optimum chilled temperature. If you compare a beer delivered from Asda to one delivered by Ocado the Ocado one always comes at a perfect chilled temperature versus the slightly chilled Asda one. This is nice for customers but comes at a high cost. Dry ice has skyrocketed in price and has added around £20m to Ocados goods distribution costs. They are looking at alternatives to reduce the cost. Some online grocery retailers are not delivering frozen goods at present as the cost of dry ice is too high

https://netherlands.postsen.com/business/61678/Picnic-customers-come-home-from-a-cold-fair-super-doesn%E2%80%99t-deliver-pizza-and-ice-cream-for-a-while--NOW.html

When basket sizes are large and Ocado are delivering at full capacity there's a flow of great profit. As customer basket sizes dwindle though, and orders reduce, the system efficiency greatly reduces.

With the continued woes at Ocado retail I can see this share hitting <£6 before long. Ocado retail is the ultimate showcase for Ocado. Question is, given Ocado retails repeated underperformance will other global grocery retailers be attracted to buy into Ocados solutions? Instead I believe they will be investing to improve their core retail offering, reducing prices etc. In this immense cost of living crisis, customers are focussing intensely on price. Choosing discount grocery retailers, bulk buying non perishables through Amazon etc. It all reduces margin. The crisis isn't anywhere near over imo..

Yes, macroeconomic environment has improved for Ocado as signs are that the interest rate rises in the US will be easy aggressive than some feared. Long way to go yet though.

Interesting day today. Nancy Pelosis potential visit to Taiwan. She's been warned against visiting Taiwan in very strong terms by the Chinese government. Potential flashpoint if she goes through with the visit..

Chilting,

Yes, markets look ahead. From my research I believe the market will further fall as it digests yet more negative macro signs/ information.

You've highlighted a single optimistic broker view re MKS. The majority of brokers however for both MKS and Ocado are reducing their price targets and downgrading their recommendations.

In my view there have been a number of red flags re Ocado recently so I am very happy currently to watch this company rather than be invested in it.

@ chilting,

You are underestimating the size of the macroeconomic headwinds Ocado faces, how enduring they will be and how brutally exposed Ocado it is to them.

There will be far better entry points to come re this share than the current share price.

Berenberg have a good understanding of Ocado however they are missing the full story that is evolving here.

Interesting to see that even Berenberg, one of the most historically bullish analysts re Ocado, now value Ocado retails market value at £1.5 billion. This infers that Marks and Spencers purchase of half of Ocado retail for £750m in 2019 has not increased in value over the last three years.

Chilting,

I think you're underestimating the importance of Ocado retail to the Ocado group. The aspect that you have not mentioned is that Ocado retail acts as the shop window for Ocado Solutions. It is an advanced, well developed network of CFCs that have penetrated, and become successful in, one of the most competitive grocery markets in the world, the UK.

Currently though this showcase operation is malfunctioning. Two sales guidance reductions so far. Consistently dropping sales. Overexpansion looks to be the latest issue.

The head of Ocado retail has left with no permanent successor lined up. Leading to the obvious question below

https://www.thegrocer.co.uk/leader/was-ocado-retail-ceo-melanie-smith-pushed-or-did-she-jump/669735.article

When overseas grocers see the current performance of Ocado retail it will cause them to think twice before signing up to be an Ocado solutions partner. In the past the performance at Ocado retail has been excellent and had played a key part in bringing in new overseas partners.

In this acute cost of living crisis Ocado retail is coming off second best due to a weaker supply chain and less purchasing power. Charging higher prices for the same goods supplied by other grocers, consumers are laser focussed on price and that is the Achilles heel of Ocado retail.

https://www.ft.com/content/7a65766c-b9b8-4947-87ce-40ddef3fcd9b

@edtheuph,

That could be the case in part. However having followed Ocados RNS announcements for many, many years the Ocado of old had a habit of releasing good news before on on results day. This time there has been no new news and nothing since the reimagined presentation many months ago.

If there was any good news to announce Ocado would have loved to announce that this week to divert attention from dropping sales at Ocado retail. The new contract/extra CFC orders cupboard at Ocado looks bare at the moment. The RNS results language re prospective new customers is of course as always very positive but there's reason to think potential customers are turning away from Ocados solutions in this acute global cost of living crisis.

A very average set of results in my view. Nothing there to propel the share price upwards. Macroeconomic economic headwinds are sustained and will be with us for some time.

Ocado retail results disappointing. Head of Ocado retail has left. Only 3 of Ocados current management took part in the recent share placing. In my view the placing was done in large part as the declining revenue from Ocado retail and rising costs across the board was forcing management to act to shore up financing. Ocado management saw that the share would be declining further and saw the opportunity to raise funds whilst the share price was £8.

Worldwide grocers are more concerned with strengthening their core operations than expanding further into online currently. The declining performance of Ocado groups showcase - Ocado retail - will not be attracting others to sign up to Ocados solutions with the same pull as previously.

Above are my thoughts, as always DYOR. Best to all

@chilting,

Personally I see the continually reducing basket sizes as showing customers are changing habits to ship more from a variety of sources. Some rapid grocery delivery companies will fail however others will merge, expand and grow into formidable competitors for the established grocers. We will see how it further goes from here

@carrington

You are very positive as Ocado solutions international partners remained committed by building out their CFCs however this is very much to be expected. Ocado Solutions overseas contracts charge some upfront fees to new customers and then there are clauses on the contracts outlining that the partnership has to build a certain amount of CFCs over a certain period. If the Ocado solutions contract terms are not adhered to by a customer then the customer can lose their country exclusive Ocado solutions contract. Opening up the possibility of another grocer in the given country signing up to Ocado Solutions. Kroger of course own 5% of the Ocado group so it's very much in their interests to be building out their CFCs network with Ocado.

Key issue to look out for is are partners ordering more CFCs than was originally expected than when they signed up. In today's announcement there wasn't news of extra CFC orders coming through compared to expectations.