'Ocado is worthless now'

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.