Blog: Dean BestUK online grocer Ocado forms another overseas partnership

Dean Best | 26 March 2019

Ocado, the UK-based pure-play online grocer, is to team up with another major overseas food retailer.

The company already works with US giant Kroger, Sweden's ICA, Canada's Sobeys and France's Casino, as well as Morrisons in its home market.

This morning (26 March), London-listed Ocado announced another deal in which it will help support a grocer grow its online operations.

Coles, one of Australia's largest food retailers, is to set up two "customer fulfilment centres" (CFCs) using Ocado's technology, with one in Melbourne and one in Sydney. The facilities are expected to go live "within four years".

The deal comes under a month after Ocado announced an eye-catching transaction for its domestic market in which it will work as a partner in the first substantive online grocery service of upmarket UK food retailer Marks and Spencer.

Of the Coles transaction, Tim Steiner, Ocado's CEO, said today: "Today marks another big moment in the continuing transformation of Ocado. Coles is a grocer with a global reputation for innovation and outstanding commitment to their customers."

Coles generated sales in its 2018 fiscal year of AUD39.4bn (US$28.1bn). The company says its online grocery sales amount to AUD1bn on an annualised basis.

Coincidentally, Roy Morgan, an Australian market research firm, yesterday issued research showing "over 5m" grocery shoppers would "consider buying groceries online in the next year", up, the organisation said, from more than 800,000 in the 12 months to December 2018.

Shoppers at Coles and major rival Woolworths are "keenest on buying groceries online", the researchers said, with 34% of shoppers at both retailers saying they would consider shopping online in the next year.

Morgan did note: "Although millions of respondents profess an interest in buying groceries online only a small proportion of customers currently do online grocery shopping. In an average month just 5% of Woolworths customers and only 4% of Coles customers buy groceries online."

Bruno Monteyne, an equity analyst for Sanford Bernstein in the UK who covers Ocado, said the deal with Coles wasn't of the magnitude of the agreement with Kroger but added Australia was a market the UK retailer should be targeting, arguing the country can carry more than four CFCs the size of the facility in Andover in southern England.

"Whilst clearly not at the scale of a Kroger-sized order book (20-plus CFCs), this underlines Ocado's ambitions for its Solutions business that reach as far as Australia. Our market scoping work indicated Australia as one of the key countries for Ocado to get new deals. We estimate a total market demand in Australia for four-and-a-half CFCs. Coles right away put in an order for half that estimated demand," Monteyne said.

Sectors: Multichannel, Retailers

Companies: Ocado, Coles

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