Ocado’s rise to stock market prominence

Ocado has overtaken Tesco on the stock market – now valued at £21.7bn compared to Tesco’s £21.1bn – making it Britain’s most valuable grocer. The company has seen a slew of investment since reporting a 52% rise in revenue for their third quarter figures this year.

The surge in value can largely be attributed to the pandemic and the resulting change in customers’ shopping habits. Social-distancing-induced queues, fear of spreading and catching the virus, and lockdown measures meant that many shoppers simply moved online to avoid these worries. So much so, in fact, that many shoppers found it difficult to place their order due to the sheer volume of traffic on grocers’ websites, including Ocado.

The company’s surge in value comes even during its breakup with previous partner, Waitrose. Waitrose, like many of the other highstreet grocery shops, has decided to develop its own proprietary online shopping service, investing heavily in new infrastructure at its Bracknell campus. M&S, who was seeing a downturn in revenue, have taken Waitrose’s place, with Ocado championing the new products as being ‘better in quality and lower in price [than Waitrose]’. Oh can there really be a coincidence that Stuart Rose, once of the bigwig in the M&S parish has been the Chair of Ocado?

As can be seen with the obvious and continuing success of Amazon, shoppers now demand convenient, reliable, and cheap online services. This facet of modern shopping has only been heightened by the pandemic, with online shopping now seen as safer and more morally responsible in times of lockdown.

Some question the validity of the valuation, however, as Ocado still has a lot to prove. The company recorded revenues of £1.8bn in 2019 – a figure expected to rise steeply this year – but is still dramatically overshadowed by Britain’s largest grocer, Tesco, which recorded revenues of £64bn in the same year.

As one of the first companies to offer online grocery shopping to the UK public, Ocado has considerable expertise and infrastructure in the sector. Part of the company’s rapid growth recently can be put down to the selling of this expertise to foreign supermarkets in order to help them set up and manage their own online systems.

To many investors, the future of Ocado seems obviously bright. The trend towards online shopping isn’t going anywhere and, seemingly, neither is Covid. It seems safe to assume that the company will only grow from here on.

And let’s not forget Amazon has desires on this market.

It could all get rather interesting.  Who knows what could happen if the competition authorities allow it.  It can not be to long before we see another attempt by a couple of the big four to merge.

Ocado’s share price, which had been healthy after striking a number of big deals with overseas grocery businesses, began to climb quite quickly after the UK coronavirus lockdown in March.

By Rebecca Garland on 01/10/2020