Ocado is fighting back
Ocado’s appointment of Sir Stuart Rose as chairman buoyed the online retailer’s shares this week and is a great endorsement that the brand has staying power.
The appointment came alongside a new ad campaign that aims to tell the brand’s story and make sure that people know what makes it different from its more traditional supermarket rivals.
Ocado has also recently appointed M&C Saatchi to handle its PR demonstrating that it’s ready to start addressing the way its brand is presented.
The online grocer has been mired in negative press since its controversial IPO in 2010 but as a brand and service, it’s hard to find fault with Ocado. Its service is consistently good, its values in line with consumers, the product range is good, the online site is user friendly and its customers are loyal. But its business performance hasn’t measured up to the brand promise.
Sales slowed in the years following the IPO and share prices have fluctuated. Ocado was also hit by capacity problems at its warehouses. However, sales growth recovered in the latest figures for the Christmas period, it is due to open a new distribution centre that will help with scale and it recently secured further debt financing from investors to fund expansion.
Taking these together with Rose’s appointment and a revived brand advertising and PR push, show Ocado’s fight back is well on its way.
Although shares were boosted by Rose’s appointment, and it seems as though the planets are aligning for Ocado, not all analysts agree on the outlook for the business.
Many industry observers hold the view Ocado can’t survive unless it’s acquired by either a multichannel retailer with a physical presence of sorts, or a bigger online retailer that offers more than just groceries. Amazon, Morrisons and M&S have all been bandied around as potential suitors.
As a former M&S chair and CEO, Rose’s appointment has fuelled further speculation M&S might look more closely at Ocado to buy it sway into the online food market - but M&S has always said that its sights are not set on an online grocery model. Most people don’t do a whole shop in M&S so it’s hard to see how it would work.
Morrisons, another possible candidate, has a track record of moving into online through acquisition though.
As the only one of the big four without an online grocery business, buying Ocado would give Morrisons a ready made system - just as buying Kiddicare provided a fully formed platform that it could use to roll out business like its wine cellar. The integration would be difficult though.
Amazon, which has made steps into selling groceries online, has a very different model to the traditional supermarkets. It sells many store cupboard items and health and beauty ranges through a subscription based model.
It has no real fresh food business though and bolting Ocado on to its already massive online business would definitely give the other supermarkets cause for concern.
Some of these speculations are more plausible than others, but if the positive momentum Ocado has enjoyed since the start of the year continues, they may not ever become a reality.
The strong Ocado brand and proposition now under Stuart Rose’s tutelage could yet prove the doubters wrong and sustain as a healthy business.