Operation Ocado: Online supermarket expects growth amidst pandemic
November 15, 2020
2 min read
What's going on here?
Online grocer, Ocado, expects profit growth as the pandemic drives people away from physical stores.
What does this mean?
The online supermarket is currently operating at full capacity as a second lockdown came into force across England on Thursday 5 November. As a result of the pandemic driven surge in online shopping, the company has forecasted a sharp rise in profits for 2020. In an update to shareholders, it was announced that the company’s profits, which in September were thought to be heading towards £40mn, were now expected to exceed £60mn – a 72% rise from 2019’s profits.
Following news of the increase, shares in Ocado rose 8%, making it a top tier riser on the FTSE 100. However this also likely influenced by news of the company’s recent acquisitions.
What's the big picture effect?
As one of few winners from the pandemic it seems it’s only up for the grocery provider which currently holds a 1.8% share of Britain’s grocery market. The company has grown from a valuation of £9bn at the beginning of the year to £18bn in November, likely a result of being the only purely online grocer at a time where there was an increased desire for online shopping brought on by the pandemic. However, the Covid-19 crisis has forced traditional retailers such as Sainsburys and Tesco to expand their online and delivery options, and become more direct competitors to Ocado. Nevertheless, Ocado still sits at an advantage due to the fact that its operations are more profitable than rivals and this is likely a result of their use of automated technology. Ocado has sold this technology to supermarkets around the world, and it has recently acquired two US-based robot developers (Kindred Systems and Haddington Dynamics) which it hopes will help it to become even more efficient through robotic packaging of orders. With these technologies, Ocado may have the power to transform how the online shopping industry processes orders. This places Ocado in a strong position for the future as it is doubtful that consumer habits will ever completely return to the way they were pre-pandemic.
With lockdown commencing just prior to the festive season it is likely that Ocado’s growth will continue to accelerate with consumers once again being driven to online alternatives. Holding this ever-growing presence in the market it is likely that Ocado will be on the lookout for future partnerships, and it is reported that the company is already looking into expanding its services from the realm of groceries to offer clothing and other products. This would however bring them into competition with Amazon, and whether or not they can compete with such a giant remains to be seen.
Report written by Julie Lawford
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