Signing a second international partnership with an overseas grocer has put Ocado closer to realising its dream of being a dominant global technology company.
Ocado said that it had agreed a deal with Sobeys, Canada’s second largest food retailer, to develop an online grocery business for the chain. It comes after a similar agreement was struck in November with Groupe Casino, the French retailer.
Investors leapt on to the bandwagon after news of the tie-up, buying up Ocado shares and lifting the price by 113½p, more than 27 per cent, to 526½p.
That extended the FTSE 250 group’s stock market rally since the Casino deal by about 60 per cent and further squeezed a posse of hedge funds that have been betting the shares will fall.
The online grocer was founded in 2000 by a trio of former Goldman Sachs bankers. Though best-known for its fleet of brightly coloured delivery vans and upmarket products, it has focused much of its recent efforts on selling licences for its delivery systems to large third-party retailers. The company finally delivered a profit in 2015 after it signed a deal to run Wm Morrison’s online grocery business.
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Under the Sobeys agreement, which is exclusive in Canada, Ocado will help to develop a warehouse to co-ordinate customer orders in Toronto. This is expected to take about two years to build and the pair will consider developing more warehouses in other urban areas. It also will build a website and a mobile ordering service.
Sobeys will pay Ocado unspecified upfront fees on signing the deal and during the development of the online business. Fees later will be linked to the centre’s capacity and service. Ocado said that it expected the deal to be “earnings-neutral” in its present financial year, but added that profits were “likely to grow” from 2019.
Duncan Tatton-Brown, its chief financial officer, said that the retail market was continuing to shift online. He claimed that the $13.7 billion takeover of Whole Foods Market by Amazon, unveiled last June, had “definitely had a positive impact” on encouraging third parties to reach deals with Ocado as the American giant threatened to transform the grocery sector. He also pointed to progress made after the opening of its warehouse in Andover, Hampshire, in 2016.
James Lockyer, an analyst at Peel Hunt, said that he expected Ocado to “continue signing further deals into the near future, as its logistics capabilities continue to be recognised globally”.
Laith Khalaf, at Hargreaves Lansdown, said that Ocado was being valued by investors as “more Amazon than Asda”.