The growing trend of popularity of online retailers was evident once again after the British online grocer Ocado over took the largest supermarket chain of the country Tesco in terms of market value with investors showing greater confidence in the company.
Compared to Tesco’s market value of £21.1bn, that of Ocado is now at £21.7bn even with just a fraction of the market share in the grocery industry in the UK.
Investors of Ocado had been encouraged to instill confidence n the company because of a rise in online food shopping as well as the company’s partnership with Marks & Spencer, said analysts. But some have also raised questions about whether Ocado is over-valued.
Ocado has only about 1.7 per cent of the UK grocery market share according to data from analyst firm Kantar, which is tiny compared to Tesco’s market share of 26.8 per cent – far greater than its nearest competitors Sainsbury’s and Asda.
Launched 20 years ago, Ocado struggled to make a profit for most of those years.
Following the novel coronavirus pandemic induced lockdown in the UK in March, the share prices of Ocado began to climb quite quickly even though its stocks were hot property even prior to that after the company struck a number of big partnerships with overseas grocery businesses.
The firm was once described by a former Tesco chief executive as a “charity” as it only made losses in its early years.
But since 2017, after Ocado struck deals with US group Kroger, Casino in France, Sobeys in Canada, and ICA Group in Sweden, its business started to flourish. A partnership agreement with Coles in Australia was later signed by the company too.
The perspective that investors have about its technology – which offers retailers the necessary infrastructure and software to build up their online service so that they are able to complete with giants such as Amazon, has been the major driver of investor confidence in Ocado.
Since March this year, after the pandemic crisis really started to bite in the UK and elsewhere and with lockdowns increasing demand for groceries online, the valuation of the company picked up speed.
Recently, after the company switched to delivering M&S food and after it reported a 50 per cent growth in its third quarter sales, Ocado’s share price got a further boost.
A section of consumers however had also criticized the company after it struck a deal with M&S and started listing the company’s products on its platform as consumers complained of order cancellation at the last moment even after placing orders weeks before.
And as the company attempted to clear its order backlog, it even stopped orders from its staff.
However questions about Ocado’s market valuation were raised by Neil Wilson, chief market analyst at Markets.com, despite the popularity of the company’s stocks with investors. “Ocado holds enormous promise but whether it can deliver is quite another matter, the cash burn remains and the payback from all these overseas deals is taking a very long time,” he said.
(Adapted from BBC.com)