Ocado Shares Soar As It Secures Second International Deal

Image The Canadian Press

Ocado's shares were up 10% in early trading on Monday at 456.10 pence per share.

The as yet unnamed service will allow Sobeys customers to shop for groceries online or via an app, and their order will be assembled, processed and delivered to their door.

Under the deal, the two companies will develop a customer fulfilment centre (CFC) in Toronto and will also consider developing more centres in Canada's dense urban areas.

Sobeys is Canada's second largest food retailer, operating more than 1,500 stores across the country, and generating sales of CAD23.8 billion in its most recently ended financial year 2017.

"The [North American online grocery] market is growing, there are a lot of buyers there, and we definitely see an opportunity", Ocado Chief Financial Officer Duncan Tatton-Brown told reporters, regarding potential future deals.

In a joint statement the companies said Ocado would help Sobeys to build a website and mobile service.

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Ocado's Smart Platform will encompass everything from the web front-end to warehouses and warehouse automation technology, including its "grid" and robotics, as well as intelligent routing for delivery services. Under the agreement, Ocado will work exclusively with Sobeys on its web site, a new automated warehouse, and delivery management.

Michael Medline, president and chief executive of Sobeys, said his firm "intends to play to win in Canadian online grocery shopping". Speaking on a conference call on June 28, less than two weeks after Amazon announced the Whole Foods deal, he said there was "no way we're going to miss out on e-commerce".

Ocado's strategy is to offer exclusivity to national retailers in their geography, providing an incentive to sign-up with the company, particularly if their own online offering is flagging.

"Ocado is the only global provider of an end-to-end platform solution for online grocery retailing ... this will become increasingly recognised by retailers globally, leading to a number of deals being signed with Ocado over time", Malek said.

However, while the deal ought to have a long-term benefit for Ocado, in the short-term it will entail additional capital expenditure of around £15 million.

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