The London Olympics would be the ultimate test case for Ocado, to see if it could keep up with shipments despite the busy traffic in the capital. Analysts are not waiting for the final countdown and in a very critical report, they state that the Ocado shares are now worthless.
End of collaboration with Waitrose
“Standing alone against the largest retailers in the country with a pile of debt and falling market share isn't sustainable … we believe that Ocado's days as a public company are limited”, states an analyst of Panmure Gordon in The Guardian. Even though the back of the delivery trucks say “partnership with Waitrose”, this cooperation is faltering.
In the beginning (2000), Waitrose's parent company The John Lewis Partnership held a lot of shares in Ocado, but since Ocado went public in 2010, they are phasing out their shares. On top of this, Waitrose has started investing in its own online operation.
Expensive distribution centre
Although Ocado is still doing business with Waitrose, the increasing distance between both of them forces Ocado to show it can act independently from Waitrose. Analysts however think it is impossible and see this as a sign of weakness.
To make sure it can operate independently, Ocado is investing in the construction of a second ultramodern distribution centre north of London. The new centre has a price tag of about 265 million euro, which explains the pile of debt the analyst was referring to.
Agreement with the banks
Ocado however states that they have come to an agreement with the banks, as they are still convinced that online ordering of provisions will be the third retail revolution, after self-service and hypermarkets.
The question remains whether Ocado will have the time to experience this third revolution as an independent company. Analysts fear that Ocado will succumb to its bank debts in a far shorter time frame.
Too small to survive
Ocado is just too small to survive: the company is smaller than the online departments of retailers like Sainsbury's or Asda, and four times smaller than Tesco's online services. To make matters worse, partner Waitrose is building its own online business and other retailers who are not active online to this day – Coop UK for instance – are considering to do so soon.
Ocado's future is looking very bleak, without a partner but with high debts and a bad financial track record: in its 12-year existence, Ocado has never made a yearly profit. In 2011 the shares were worth around 2.85 pounds (3.6 euro), but have dropped to 0.7 pounds (0.9 euro).
Waitrose is lifesaver
Panmure Gordon says 0.5 pounds (0.64 euro) is a more realistic value for the shares, suggesting that even that is still half a pound too much. This coincides with the observation of a different analyst last year: 'Ocado starts with an o, ends with an o and is worth zero'.
Should Ocado falter, a lot of financiers will lose their money and the scenario where John Lewis (Waitrose) will be the lifesaver for the shareholders is quite realistic. This way, Waitrose will suddenly become Great Britain’s second online food retailer, at almost no expense.