Recent growth in Ocado’s retail food delivery arm and joint venture with Marks & Spencer is making Ocado shares attractive again after a period of share price underperformance compared to the wider market.
Ocado has been the fastest-growing food retailer for seven months in a row.
However, the company still sits just above ‘other retailers’ in Kantar’s list of supermarkets’ market share. Ocado had a market share of 1.8% in the 12 weeks to 1 September. Iceland is just above them with a market share of 2.3%.
Although they are probably no more of an annoyance to the likes of Tesco and Sainsbury’s than a major threat, Ocado is building momentum.
Investors who may have discounted the food business and focused on Ocado’s technology solutions may be having a rethink. Ocado Retail’s sales surged around 15% in the 13 weeks to 1 September. That is no small increase, and it is all the more remarkable given the pressure the UK consumer is under.
A recent trading update unveiled a 10% increase in active customers to just over 1 million who are now shopping with Ocado more frequently. Ocado shares surged in early trade on the morning of the release as investors cheered the offering’s traction.
For many, the key interest in Ocado sits with their fulfilment centres. And rightly so. Ocado are working with the world’s largest grocers and establishing distribution channels that may provide Ocado revenues long into the future.
That said, investors consider the opportunity in Ocado Retail’s aspirational attractions and the potential to steal more market share.
“Our strategy remains focused on giving our customers unbeatable choice, unrivalled service and reassuringly good value. We’re seeing the momentum of this, with more customers shopping with us more often, getting even better service at better value,” said Hannah Gibson, Ocado Retail’s Chief Executive Officer in a comment attached to the recent trading statement.
If more people can get the bulk of their shopping at reasonable prices from Ocado and treat themselves with the odd indulgence, Ocado’s food delivery service could become a viable option for millions more people in the UK. As interest rates fall and discretionary budgets grow, the middle classes may even aspire to switch to doing their weekly shopping at Ocado.
As we’ve outline above, many people already are switching to Ocado. A mixed approach to pricing is drawing people in. If the momentum continues, Ocado may be more than an annoyance to Tesco and Sainsbury’s.
Ocado shares will benefit in such a scenario.