British online grocer Ocado seeks overseas partnerships
Online grocer Ocado expects to strike an accelerating number of joint ventures with retailers outside its domestic British market, mirroring its deal with the Wm Morrison supermarket chain, its chief executive told Reuters. The value of such deals was highlighted by Ocado's May announcement of the 200 million pound ($322 million) 25-year deal to provide Morrison's online operation, much to the annoyance of upmarket grocer Waitrose, its long-term partner.
Copyright Reuters, 2013
Ocado shares soared as much as 47 percent to 296.8 pence on the announcement and have since climbed to more than 450 pence. Speaking on the sidelines of the World Retail Congress in Paris, Ocado CEO Tim Steiner said he has been bombarded with calls from retailers asking how to break into online grocery, adding that he had spoken to companies in Europe, the Americas and Australasia.
"We do expect to do more Morrison-esque transactions to monetise our technology," Steiner told Reuters. "We need to develop software which you can plug and play." "We could do one, then three, then nine," Steiner said, noting that once Amazon had mastered the technology, it quickly signed up an almost endless procession of suppliers to its marketplace. "Tech is a global asset. You don't want to invest in a platform and then just deploy it on a little island," Steiner said, adding that he plans to increase his techology staff to 450 by this time next year from 350 now.
"The amount of maths in our business is enormous," he said, pointing out that Ocado developers constantly refine software that optimises routes for delivery vans and the selection of goods in warehouses, while also honing product search and recommendation tools. British retailers have been trailblazers in moving to sell food online, with the business growing 16 percent a year even though delivery logistics for chilled products is much more complex and expensive than for non-perishables. Even Amazon has made only tentative steps into grocery, though it is now preparing to expand its "Fresh" business to 20 urban areas in 2014. It says that it may expand outside the United States, but it has not specified where.
"For most retailers on the planet, Amazon has to be the scariest competitor. They are less scary to us because we do something that is more complex than they do," Steiner said, shrugging off suggestions that Amazon might want to buy Ocado. "We're not advertising ourselves for sale," he said. Steiner is hopeful that Ocado will maintain its partnership with Waitrose despite its disquiet at the Morrison deal, but he said that the issue was not pressing because its supply deal runs until 2020, with a break clause in 2017. If it does end, Steiner said that Ocado would either seek a partnership with another group or expand its own label.