London Briefing: Ocado’s goes from joke to blazing success

William Hill gambles on its landlords being scared into agreeing cuts for shop rentals

Ocado plant in Hampshire. A recent blaze had a big impact on Ocado’s UK sales but it has not deterred customers from signing up for  automated delivery expertise. Photograph:  Peter Nicholls/Reuters

Ocado plant in Hampshire. A recent blaze had a big impact on Ocado’s UK sales but it has not deterred customers from signing up for automated delivery expertise. Photograph: Peter Nicholls/Reuters

 

When a huge fire swept through Ocado’s automated warehouse in Hampshire six weeks ago, there were reports that firefighters tackling the blaze had to contend with robots running out of control on the site.

It’s a surreal picture: the mechanical creatures still trundling along their automated grid system trying to shift stocks as the building burned around them. It’s not what actually happened, according to Ocado, despite reports from some firefighters, although the group has yet to reveal what actually started the blaze.

The prospect of robots bursting into flames does not appear to have deterred buyers of Ocado’s food delivery technology and on Tuesday the group signed up another overseas retailer to its warehouse delivery model.

Coles, the Australian supermarket chain, has committed to two robot warehouses, in Sydney and in Melbourne, which will be constructed over the next four years. It’s Ocado’s fifth major overseas deal in 18 months, and the first since its flagship UK warehouse was destroyed by the February fire.

So while the blaze has had a big impact on Ocado’s UK sales, it has clearly not deterred new retail customers from signing up for its automated delivery expertise, news which pushed the FTSE 100 group through the £13 a share level for the first time, taking them to a new record high.

At this level Ocado, founded in 2000, is valued at more than £9 billion. That’s double the market capitalisation of Marks & Spencer and about £4 billion more than Sainsbury’s, Britain’s second-largest supermarket chain.

It’s a very different story from a few years ago, when Ocado was little more than a joke in the City. Sceptical analysts liked to quip then that it started with an O and ended with an O and was worth precisely that – zero. Its shares slumped as the market grew tired of waiting for long-promised overseas licensing deals.

The turning point finally came a year ago, when Ocado unveiled a major push into the United States via a warehouse construction deal with the American grocery giant Kroger. Then, a month ago, came its big tie-up with M&S, which will use Ocado to launch its move into food delivery in a partnership that will see M&S pay £750 million for a 50 per cent stake in Ocado’s retail operation.

Having been the butt of the City’s jokes for almost two decades, Ocado chairman Tim Steiner now likes to tell his own joke – that Ocado is “an 18-year overnight success”.

Ocado is, of course, still loss-making and it will be years before revenues from its new sign-ups flow through. But the transformation of the business from niche retailer to global technology provider is reflected in the performance of its shares, which have surged by almost 150 per cent over the past 12 months.

That puts them on a heady tech rating, but, as one analyst noted yesterday, if it can deliver the goods (literally) and continue to sign up new warehouse customers, it could just become “as important in grocery as Microsoft’s operating system is in computing”.

William Hill’s plan for recouping cash

Bookies don’t like to lose so someone will have to pay for the huge financial hit the gambling industry has suffered as a result of the UK government clampdown on fixed odds betting terminals.

Dubbed the “crack cocaine” of the gambling industry, FOBTs allow punters to bet up to £100 every 20 seconds, and account for as much as half the revenues of high street betting shops.

From April 1st, however, punters will have their wagers restricted to just £2 every 20 seconds, meaning the most they can lose on FOBTs is £6 per minute.

This will blow a huge hole in bookies’ profits. During the long and bitter battle over FOBT restrictions, the industry repeatedly warned of widespread job losses if gambling campaigners had their way.

Now William Hill has come up with one way of recouping some cash – from its landlords. The betting chain has warned its high street landlords – about 2,000 in total – that it wants a 50 per cent reduction in rents on its shops.

It wants the cuts immediately, otherwise it says it will be forced to close up to 900 of its 2,300 betting shops chain, in which case there’ll be no rent at all.

William Hill is betting that at least some of its landlords will be scared into agreeing the cuts. As the number of empty shops on the high street continues to rise, it’s a bet the bookie will probably win.

Fiona Walsh is business editor of theguardian.com

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