Blog: Gloom descends on Ocado
Dean Best | 21 September 2011
"We now expect Ocado to lose money for at least the next two years." The words of one UK retail analyst today (21 September) amid speculation that Tesco is planning a major new offensive on price.
"It looks like the sector's big dirty secret is about to reveal itself. Market gossip suggests that Tesco is set to launch a significant price offensive next week," Panmure Gordon analyst Philip Dorgan said today. "Ocado is playing with the big boys now. Unfortunately, scale is a big advantage in food retailing, so we expect Tesco's planned price initiative to hurt Ocado disproportionately. We therefore now expect Ocado to lose money for at least the next two years."
Ocado's shares, which dropped by nearly 12% on Monday after it reported a slowdown in sales and said its margins would be lower than initially forecast, fell again today. At 15:40 UK, Ocado's stock was down 10.46% at 103.6p. Given that Ocado's shares closed on Friday at 133.7p, the stock has slid over 30% this week.
The retailer, which listed last summer, remains under scrutiny. Its third-quarter trading update on Monday worried investors and, despite the potential of the UK's online grocery sector, there are concerns that the company is set to face ever-growing competition.
Ocado has had a long-running "Tesco Price Match" campaign where it matches the UK's largest retailer on price on "all identical branded goods". Should Tesco launch a significant push on price in the coming days, Ocado stands to suffer. And, with the UK's Big Four looking to step up their online presence in different ways, it could be a taste of things to come.
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