Online grocery specialist Ocado’s recent results revealed sales growth and improved EBITDA but City analysts suggest the group should be placing more focus on its global grocery partners that have bought its automated warehouse technology.

The company posted group revenue up 9.9% to £2.8 billion and group-adjusted EBITDA of £51.6 million for the year to end-December 2023 compared with a loss of £74.1 million in 2022. Within this the sales at its Technology Solutions division moved up 44%, Logistics was up 1% and Ocado Retail (the joint-venture with Marks & Spencer that operates Ocado.com) increased by 7%.

This is positive progress for the company but City analysts Peel Hunt suggest Ocado needs to move away from its dual focus on its Ocado.com retail business and its technology arm as this has “stymied its full growth potential” following its move some years ago into B2B enterprise sales that involves it selling its technology to companies including Kroger, Casino, Sobeys and Lotto. 

This has become the biggest element of the group as Ocado Retail has continued to fall in group-wide relevance, with it representing only 25% of EBITDA in 2023. According to Peel Hunt, part of a greater focus on its Technology Solutions business should be involve the adoption of more recognised KPIs such as gross merchandise value (GMV) and recurring revenue rate (RRR). 

In addition, it suggests the company should move on from assuming its grocery clients can simply implement the technology and easily replicate the success of Ocado.com. The analysts suggest Ocado needs to recognise its clients are specialists in traditional store-based grocery retail and therefore need ongoing help to maximise the value of their investment in the technology. Ocado Group should better develop the client success dynamic.

“Gone are the days selling perpetual licences and moving on: if clients fail to use the software properly, in the past it did not matter. However, in a world where SaaS is commonplace and pricing is moving to value/success-based, it is vital to partner with clients and ensure they make the most of their investment,” states Peel Hunt.

This has been acknowledged by Tim Steiner, chief executive of Ocado Group, who says: “In the current year, we expect our partner success programme to help put our partners well on the path to generating attractive returns from their investment in the Ocado Smart Platform, a key deliverable to drive orders for more capacity in their existing sites and additional future sites.”

Over the past year the company has opened three new state-of-the-art robotic CFCs (Customer Fulfilment Centres) for its partners in Japan and Canada as well as a further centre for Ocado Retail. This latter CFC will help with capacity in the UK where the Ocado.com business has been named the fastest growing British supermarket, according to NIQ, which found sales had grown 12.2% during the 12 weeks to February 24. It was closely followed by M&S, which was up 11.9%, Lidl at 10.4% and Aldi at 6%.

However, the performance of Ocado.com during 2023 has resulted in its joint-venture partner M&S withholding an instalment of £190.7 million, which is dependent on an undisclosed target. This would have been set when the pair partnered in 2019 to create Ocado Retail, a £750 million venture. 

This has resulted in Steiner fighting back: “We believe that we have a very solid case to get full payment, although we know that M&S may not entirely share that view. We’re happily having conversations with our partners, and we would much rather solve this in a nice and constructive way, which is what we’re working towards doing.” The alternative is legal action, which he has not ruled out.