Can new boss rescue Ocado?
Jan 25, 2013
Online supermarket Ocado has a new chairman – the former Marks & Spencer boss Sir Stuart Rose. This is his first major role at a British retailer since he left M&S in 2010. Rose said he thinks Ocado has the potential to become “the ASOS of food”, a reference to the popular online fashion retailer.
What the commentators said
Rose “earned huge respect” during his seven-year stint running M&S, said Jonathan Guthrie in the FT. He saw off a takeover bid from Philip Green and lifted profits to £1bn for the first time since 1998. As for joining Ocado, however, “one admires his appetite for a fight”.
Rose is used to “selling posh food to posh people”, said Lex in the FT. However, making Ocado turn a healthy profit will be a mammoth task. The group has existed for 11 years and it has never been in the black, noted Darshini Shah on iii.co.uk. It recently had to refinance debt with its banks; still has net debt of £93m; and plans to burn through another £46m in near-term capital expenditure. Pre-tax losses are forecast to widen this year.
The basic problem is that its approach of fulfilling orders from central depots is very expensive, while it lacks the scale to reduce costs (so far there is only one distribution centre). Meanwhile, supermarkets can subsidise their internet operations and are now benefiting from new services, such as “click-and-collect”.
Ocado’s “business model is just not working”, said Clive Black of Shore Capital. That’s bad news for Rose: “the evidence tends to suggest that bad companies will always beat good management”.
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