Ocado capital expenditure totalled approximately $4.3 billion over the 2007–2020 period; the majority was invested in robotics to ensure automation of the ‘customer fulfillment centers’ (CFCs). The tech-led retail business grew its revenue by 15.5% in 2021 (4.6% in GBP), following a record year in 2020—a year in which COVID-19 forced many to shop for food from home.
In the UK, Ocado Retail is an online grocery division of Ocado Group and in 2021 it was responsible for around 91.6% of the group’s revenues. The remaining revenue was generated by Ocado Solutions, Ocado Group’s automation unit for third-party grocers, which utilizes AI, robotics, cloud, and Internet of Things (IoT) to improve the efficiency of its CFCs in the UK, the US, Japan, France, Canada, Australia, the Netherlands, Sweden, and some Eastern European countries. For more information please refer to the Robotics Thematic Research report.
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Ocado has potential
Last year’s revenue stood at $3.34 billion, 53.3% greater than the $2.25 billion reported in 2019 (42.2% in GBP). In 2020 and 2021, the share price grew from around $1,612 to $2,152 (up 33.5%). Capital expenditure in 2021 increased by 62.3% from $578.3 million to $938.4 million, causing the net loss to grow from $66.9 million to $244.1 million—in fact, the group has not reported a profit since 2016. Since the company evolved into a tech software and automation company, it has the potential to grow fast over the next few years, when the returns from investments made in the last two years will start to grow.
Ocado Solution is the section of the company that has the potential to grow exponentially. In its full-year 2021 report, Ocado Group showcased several robots that are going to be utilized from the second half of 2023, including Series 600 Bot, Automated Frameload (AFL), On-Grid Robotic Pick (OGRP), Ocado Orbit, and Ocado Swift Router. These new products are the reason why GlobalData Thematic Research’s Theme Exposure heatmap identifies robotics as the most engaged theme for Ocado, with AI coming in second. As of February 2022, the group had filed 78 patents and filled over 70 robotics jobs. Despite the company hiring over 18,000 employees, 70 for robotics specifically is still a very substantial number.
M&A
Ocado Group invested in two robotics companies: Kindred Systems in November 2020 for $262 million and a minority stake in Myrmex in October 2020. The Kindred deal allowed Ocado Solutions to speed up the commercialization of its robotic picking and other automation tasks for Ocado Smart Platform (OSP), the company’s proprietary software and hardware solutions for operating online grocery businesses. OSP is used by Kroger in the US, Sobeys in Canada, Morrisons in the UK, and many others.
Risks
In 2021 the US inflation rate went up to 6.8%, the highest Consumer Price Index percentage increase since 1982. In the UK, the Office of National Statistics reported 4.8% for the equivalent indicator. A higher rate of inflation decreases the purchasing power of wages, which are not growing in line with inflation, and hurts more premium food products. In the UK, Ocado Retail sells a large number of expensive food items; the division was responsible for over 90% of the group’s revenues in 2021.
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By GlobalDataThe lack of profits in the last four years, and subsequent lack of dividends, may aggravate investors in the future. The projected capital expenditure for 2022 is £800 million, 17.6% higher than 2021 and 77.1% up from 2020.
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