Ocado bid for online supermarket sweep

Britain has been a laggard in the the global battle to establish a leading internet company.

Shopping group Ocado, launched by three former executives at Goldman Sachs, is our only player.

But the company’s share prices have been on a roller coaster ride.

They doubled to around 300p after the market launch, only to tumble to just 60p two years later. Shares have now bounced back to 300p.

This year, a deal with supermarket giant Wm Morrison has proven to be a turning point for the online group.

Ocado received a £170 million-injection from the supermarket group, which helped secure its new state-of-the-art premises near Coventry. In return, Ocado will provide Morrisons with an online presence as it has lagged behind competitors because of this online deficit.

However, trade sources claim that Morrisons has overpaid for access to Ocado’s facilities and handed over too much profit margin to its new partner. In addition, by signing up to a 25-year deal, supermarket representatives have attached themselves to a generational commitment in a fast changing marketplace.

The deal is said to have sparked a rift between Ocado and Waitrose — who secured a 10-year supply deal in 2010.

Though the Morrisons link helped establish Ocado as a grocery logistics brand — it was widely perceived as a delivery service, rather than a new concept in food retailing, using the best algorithms and robotic selection to supply customers.

In response to the Ocado-Morrisons deal, Waitrose is speeding up its own online delivery service and has the right to divorce from Ocado by 2020. In time, Waitrose may well come to regard the Ocado connection as merely an additional distribution channel.

Critically, the Morrisons link has led investors to see Ocado in a new light.

The next move for Ocado’s chief executive Tim Steiner and chair Sir Stuart Rose is to take the online grocery shopping model global.

An agreement has already been signed with the French hypermarket group Carrefour, the world’s second largest retailer after Walmart.

The goal is to make Ocado the Amazon of the grocery world. But there is still a very long road to travel.

Alex Brummer is City Editor of the Daily Mail

Last updated: 9:45am, August 16 2013