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Issue #583 | Forest Products

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2014 Media Kit
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Ocado sees opportunities from Amazon move into groceries

By: | at 05:09 PM | Channel(s): Transport Intermediaries  

British online grocer Ocado sees Amazon’s push to sell more groceries as more of an opportunity than a threat, believing it will encourage big international retailers to look for partners to help them get set up in e-commerce.

“What Amazon is clearly doing is awakening the global grocers to the online challenge they are going to face and they are accelerating the opportunities for us as a platform partner provider,” Ocado Chief Executive Tim Steiner said on Thursday.

Amazon plans to expand its “Fresh” grocery business within the United States this year and is reported to be considering launching in Germany, its second biggest market, prompting big retailers in the country to seek to set up online operations.

Ocado expects to strike partnerships with retailers outside its home market Britain like its 200 million pounds deal with Morrisons, Britain’s No. 4 supermarket group, to provide its online grocery operation.

Speaking at the Retail Week Live conference where he was continually approached by executives offering business cards, Steiner said he had already spoken to 40-50 global retailers about working together, including a dozen this year.

But Steiner told Reuters Ocado was not rushing to do a deal with an international partner, noting that it had been able to launch online sales for Morrisons quickly because it had spare capacity, with a new warehouse taking 2-1/2 years to build.

“We’re working on more scalable, modular, faster-to-market solutions,” he said. “Rather than succumbing to market pressure to announce something, we continue to focus on the long-term.”

Ocado, which mainly sells products supplied by upmarket grocer Waitrose, has seen its share price rise more than four-fold over the last 12 months. It posted an 18 percent rise in first-quarter retail sales on Wednesday, putting it on track to make its first annual pretax profit this year.

Stores Cannibalized

Online grocery sales will roughly double from 2012 to 2016 in five major northern European markets - Britain, France, Germany, Switzerland and the Netherlands - the food and consumer goods research group IGD forecasts.

Steiner predicted that 40-60 percent of grocery would ultimately be sold online in the developed world, up from just 5 percent in Britain now and much less than that in most other countries: “We are going to end up as a global business.”

“As we grow online and as the stores get cannibalized, the economics are going to shift so wildly in favor of the online grocer ... that it is going to become the cheapest place to get groceries, with more selection at lower prices.”

While Amazon is not currently a serious competitor, he sees the world’s biggest online retailer as the main long-term rival.

“Ask me who will be our biggest competitor in online grocery in 20 years time, is it more likely to be Waitrose or Tesco or Amazon? I would place my money on Amazon,” he said.

“Grocery retailing over the next 20 years is going to be driven by technology ... I don’t rate the technological skills of my competitors versus the technological skills of Amazon.”

While Amazon moves to complement its sales of books and toys with food, Ocado is expanding its offering of higher-margin non-food goods as customers seek combined deliveries.

Steiner said he was also looking to leverage the Ocado delivery network for sellers outside of its network. (Reuters)