Ocado to be propelled into FTSE 100 after international deals
The grocer proved its doubters wrong with a recent deal in the US and is in line for a stock market promotion.
Ocado is set to be catapulted into the FTSE 100 for the first time after a string of high-profile international deals led to its shares soaring.
The online grocer secured a deal with US giant Kroger earlier this month, which resulted in its share price rising by more than 40%, embarrassing short-sellers in the process.
Now, Ocado looks set to be promoted to the FTSE 100 when a reshuffle of the blue-chip index takes place on Wednesday.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Ocado looks likely to enter the FTSE 100 for the first time after a sensational year which has seen the share price treble.
“The company has managed to sign deals in France, Sweden, Canada and the US to license out its market-leading online delivery technology.
“Ocado has for some time been a popular stock for hedge funds to bet against, but now just 5% of the company’s shares are in the hands of the short sellers compared to 13.5% in January.”
Shares in the group have rocketed from around 314p to 880p in the space of 12 months.
Ocado has signed a string of similar agreements in Europe and beyond, and is developing customer fulfilment centres with retailers in France, Canada and Sweden. In the UK, Ocado works with Morrisons.
Ocado continued to prove its selling power by signing Canada’s Sobeys in January, and Sweden’s ICA Group in May.
But these deals were only for one customer fulfilment centre.
Kroger has signed for up to 20 units, and Ocado may well extend the agreement in future.
“The others have been quite tentative, but Kroger has been quite courageous,” said Anne Marie Neatham, chief operating officer of Ocado Technology.
Ms Neatham joined Ocado 16 years ago, and has seen the company’s technology arm grow from a workforce for 350 to over 1,200.
She said the international deals work well for Ocado because the company does not need to understand foreign markets intimately to be able to do business there.
The retailers partnering with Ocado know their home markets inside-out, and Ocado provides the technology to allow them to take their services online, she said.
The technology, known as the Ocado Smart Platform, is an automated system for packing orders in warehouses.
It is operated by robots, which whizz around a grid to pick up products and deliver them to employees, who pack items into the bag for the customer.
Ocado’s technology is unique because it is the only system that can provide such an automated service for food packing.
Many retailers still use a “store pick” model for delivering online groceries, which involves sending workers round supermarkets to physically pick products from shelves.
However, depending on the order size, this method can take up to two hours.
A robot can do the same job in under 10 minutes.
For the business, and the customer, this means the costs of doing online delivery are significantly reduced.
Ocado’s exclusivity agreement with Kroger means it cannot sign with another retailer in the US, but in international markets, the company has not ruled anything out in terms of where it will do business, or who with.
Ms Neatham said Ocado could also use its current system in other areas of the retail sector.
“We might find other uses for (for the technology), we are always looking at the next big thing,” she said.
“We are thinking very far outside the box.”