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What's going on?
The stock price of Ocado initially jumped more than 7% but then ended the day having lost value after the exclusively online supermarket inked its first deal to license its technology abroad.
What does this mean?
Ocado was founded in 2000 with the aim of revolutionizing the British grocery industry by eliminating physical outlets: customers would order online and have their groceries delivered. But things havent gone exactly as planned for the company partly because other grocery stores launched their own online businesses. Ocado has shifted its priority to partnering with grocery chains, essentially helping them become online retailers by supplying them with technology and logistical expertise. It currently works with Morrisons and initially aimed to find an international partner by the end of 2015. It took 18 months longer than that, but its now found that partner: a (so far unnamed) regional European retailer.
Why should I care?
For the stock: The news was a bit underwhelming.
The stock initially popped 7%, but quickly fell back as investors parsed through the details. Ocado described the new customer as regional, which probably means its not a huge chain, otherwise it would have said a national or international retailer. The customer is also not signing on to use Ocados specialized warehouse machinery, even though Ocado says that it is its most valuable technological innovation (perhaps because its not that innovative). Ocado intends to find more partners in the medium term, and investors will be watching closely to see if that happens.
The bigger picture: Amazon is coming
Coincidentally, Amazon announced on Monday that it will be expanding its Amazon Fresh grocery delivery beyond its existing operations in London and Surrey. Thats a threat to Ocado on numerous fronts. For one, Amazon is an extremely well-funded competitor. Also, its parking its tanks on Ocados lawn by seeking to partner with existing grocers to help them make deliveries (for example, Morrisons has a partnership with both Ocado and Amazon).
Originally posted as part of the Finimize daily email.
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