If there is one thing we can be certain of over the past few weeks it is that food delivery has moved onto a new level of demand as the lockdown has driven significant adoption of the services of the main supermarkets.
Customers have flocked to the major grocers and created seriously long virtual queues with the result that Morrisons has upped its capacity by 60%, Tesco has been looking to add 33% more delivery slots, and Sainsbury’s has rolled out its click & collect capability to more locations.
Alongside home delivery there has been an uplift in demand for click & collect, which is a route for the grocers to dramatically increase their online ordering proposition as they leverage value from their in-store picking model and extensive nationwide store estates. They have been able to basically bump up their capabilities by throwing more people at the problem, which has included using more vans located in store car parks rather than for home deliveries.
Such moves have not been possible for Ocado, which relies on its automated technology and vans to fulfil orders to the home. It is not able to crank up the speed with which its robots operate and it only has a finite number of vans. Yes, it can add vans but the velocity of its robotics is not a variable it can play around with, and it does not have the benefit of offering click & collect.
The present levels of demand will clearly fade but the new audience that has been attracted to online grocery shopping might well have changed the multi-channel dynamic in the food sector – potentially with click & collect becoming a bigger feature.
This scenario has led broker Jefferies to paint a possible bear story for Ocado and its OSP (Ocado Smart Platform) model in a recent note. It questions the logic of grocery operators buying into an incremental fixed cost structure that is very capital intensive.
Experience has shown that bears have paid a very high price when messing with Ocado. Its share price has been one of the top performers over the past two years and one of the more resilient during the Coronavirus pandemic. Like many before it Jefferies raises some valid points about Ocado but it is a very brave investor who takes a negative position.
Glynn Davis, editor, Retail Insider