U.S. retailers seeking a low-risk, less capital-intensive approach to e-commerce might find one across the Atlantic.
Ocado, a United Kingdom-based online grocery retailer, has publicly expressed a desire to partner with U.S. or other international food retailers, according to Karen Short, an analyst with Deutsche Bank, New York. Ocado is the largest dedicated online grocery retailer in the world and controls a 12% share of the online grocery market in the U.K., including the online grocery business for Morrisons’, with whom it has an exclusivity agreement, Short said.
Ocado's 2014 sales were up 15.3% to approximately $1.5 billion (U.S.). The company carries around 43,000 SKUs.
"[A] forward-thinking grocer would be wise to seize a first-mover advantage in the online space by partnering with Ocado, particularly since the grocery market is moving in this direction," Short said in a note to clients published Tuesday.
“For a U.S.-based food retailer looking to launch an ecommerce business, partnering with Ocado has several advantages,” Short added. “First, Ocado would put up a large portion of the capital in exchange for a one-time set-up fee and a commitment of at least three years, which would include variable fees tied to sales. Second, Ocado would handle ongoing maintenance of the equipment, thereby reducing labor and other expenses.
“Third, Ocado would be responsible for integrating all systems and for software updates. Fourth, partnering with Ocado would provide a first-mover advantage, which is especially critical given the market is likely to shift more toward online in the future.”
Short said any deal would probably include an initial signing fee, to get the retailer on Ocado’s platform; set-up costs for a customer fulfillment center inside a distribution center; and an annul fee. According to Short, 99.3% of Ocado orders in 2014 were delivered exactly as placed, up from 99% in 2013; deliveries were on time or early 93.5% of the time, down slightly from 95.2% in 2013; and deliveries per van per week rose 2% to 163 in 2014.
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