Online retail specialist Ocado has signed an international partnership with Groupe Casino, which will see it develop a ‘scalable, modular end-to-end solution’ to help support the French operator’s online channels. Here’s how the analysts saw it.
Clive Black, Shore Capital
“Ocado has pleasantly surprised for once. After years of teasing about potential internationalisation, the group has actually announced that it has nearly signed a deal. The transaction is not with an obscure Nordic business, but no other than Groupe Casino, across the Channel in France. Who says Brexit could end the Entente Cordiale?
"Whilst genuinely welcome, the devil – as ever with Ocado – is in the detail, so more capital expenditure and no EPS enhancement until FY2019, with no indication of the materiality of that enhancement. Let’s hope that, unlike Andover (CFC3), the robots actually work from day one. Accordingly, whilst conceptually welcome, investors may need to remain patient for actual benefit at the post-tax line from this charmed business.”
David Beadle, Moody’s
“The agreement with Groupe Casino is credit positive for Ocado, as it will, in due course, lead to increased diversification of revenues and earnings. The deal represents another step forward on the company’s stated strategic goal of having agreements with a number of international retailers using its Smart Platform technology.
"We believe the company has sufficient cash and liquidity to fund the related capex of £15 million in 2018 and further spend beyond that as they build out and subsequent target a launch of a Customer Fulfilment Centre for Casino, which we would expect to occur in 2020.”
Barclays European Food Retail Equity Research
“If one retailer is willing to buy Ocado’s technology, then logic suggests there may be more – as, indeed, was suggested by the press yesterday. Having succeeded in selling its services, there is, of course, no guarantee that Ocado can do so profitably – this will only become clearer over time. […] On the positive side, this agreement will provide Casino [with] a competitive advantage in terms of technology, and Casino has seemingly managed to negotiate some contractual safeguards to protect its interests.
"On the negative side, there is limited evidence that online grocery will become a profitable growth-driver in France in the foreseeable future, even with Ocado’s technology, while this agreement implies additional capex for Casino in the short term.”
Gildas Aitamer, LZ Retailytics
“Improving semi-automated warehouses is a costly and time-consuming process, and Ocado's insights help limit risks and speed up the go-live date. On Ocado's side, it helps to amortise costly investments. One of the world's largest retailers' interest in its technology surely helps flexing muscles to its own investors, after years of loss-making.
"Even so, it's not all roses. The company had shown strong international ambitions regarding its Ocado Smart Platform Solution, but the process has reportedly been dragging on. We also raise questions on Ocado's long-term expansion vision as a retailer, beyond the UK, as it seems to be turning into a solution provider.”
“Ocado’s technology is more sophisticated than that used in Amazon fulfilment centres, making the two-year timeline realistic, if not optimistic. For Casino, the tie-up is rooted in the need to operate e-commerce profitably.
"Online grocery is notoriously cost-heavy due to the need for short delivery windows and temperature-controlled delivery vehicles. Wider competition, particularly Carrefour rolling out one-hour delivery windows and Amazon’s rumoured moves, is a major factor behind the move.”
“In the UK, online grocery sales are seeing strong double-digit current value growth, although growth was slightly below the level of overall Internet retailing in 2016. Online grocery is continuing to attract more shoppers, due to busier consumer lifestyles and a general shift towards shopping online, and the leading players – Tesco, Sainsbury's, Asda and Morrisons – and online specialist Ocado are striving to offer maximum convenience to consumers with a particular focus on click-and-collect orders, swift home delivery, and mobile-friendly ordering.
"In France, food and drink Internet retailing continued to achieve double-digit current value growth in 2016, thanks to the success of click-and-collect/drive outlets. While the home delivery of grocery products remained limited in France, the click-and-collect/drive format further gained ground. In this channel, there were more than 4,000 drive-through collection points in France in early 2016, compared with more than 3,000 in 2014 and just 1,000 in early 2013.”
© 2017 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.