Ocado online retailer are going through tough times due to the cost-of-living crisis
Ocado is likely needing another £1 billion cash injection, due to losses
Stockbrokers, hedge, and pension fund managers likely to demand Ocado is broken-up to become profitable
The online supermarket retailer Ocado is going to the fund managers for another cash injection of probably another cool billion pounds.
Ocado realised early on that technology is where the revenue will eventually come from, so they made steady progress to build an automation system using an army of robots to pick and place into food crates to be placed onto hundreds of vans to deliver to the customer as efficiently and cost effectively for the company.
But Ocado was started with the idea of founder and current CEO Tim Steiner going to the United States to wind down and liquidate a company called, Webvan who promised to deliver products anywhere in the United States in record time, which became their downfall.
Searching for a business opportunity in the United Kingdom, Tim Steiner decided on a home food delivery service once he had finished the work on, Webvan company on behalf of his brokerage company he worked at Goldman Sachs.
Being turned down by the major players in the supermarket and retailers, the only one that saw a future and the same vision of Tim Steiner was Waitrose, part of The John Lewis Partnership.
Waitrose gave Ocado the start-up money and had an exclusive deal with Ocado to deliver Waitrose food and products to the army of middle-class England.
This worked for many years until Ocado was able to get a delivery deal with Morrisons, which didn't go down too well with Waitrose and nearly led to a court proceeding over whether this new deal violated the original deal with Waitrose.
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Over the years Ocado developed technology, which led to two important disagreements between AutoStore a company from Norway, who actually had Ocado as a customer and even hosted Ocado's engineers in showing them how their automated picking system worked, and the other case was from former founding member Johnathon Faiman who was apprehended in his hotel room with the blueprints of Ocado technological picking and robotic systems.
These two legal cases which resulted in court cases in London, the United States, and Europe did affect Ocado and their share price that went up to £30 by August in 2020, rapidly declined to a low of under £4 in two years to 2022, but the cases were either won, settled, dismissed, or withdrawn in Ocado's favour.
However, over the past twenty-years Ocado has only been profitable for one year when they struck the deal with Morrisons and has to rely on cash injections for the rest of the nineteen-years.
Ocado raised £1 billion within less than 5 minutes in September 2022, which was a surprise that hedge and pension fund managers who are in charge of vast wealth of people's pension money did not seem bothered - why would they if it is not their money - to keep giving large handouts to Ocado.
This was billed by Ocado management as the last big push to give enough capital for Ocado to invest in getting more customers for their technology and smart system across the world.
But the problem Ocado have is that they build the warehouse or Customer Fulfilment Centre (CFC) as they call them and put all of the infrastructure and software for the robots to run across the grid system, which is a big outlay, and takes a couple of years to get these Customer Fulfilment Centres up and running and the customer to start to pay Ocado for the use of their infrastructure and technology.
With deals in France, Canada, Sweden, Australia, United States, and the recent one in South Korea each took £100 million to build these facilitates then that's the best part of £600 million, not to mention the ones being built across the United Kingdom, in their new exclusive deal with Marks and Spencer, after their deal with Waitrose came to an end.
Now, in 2023 Ocado have released further losses as the cost-of-living crisis associated with the war in Ukraine resulting in high oil and gas prices and inflation running into double digits, starts to affect customers from the more middle to upper classes who start to feel the squeeze.
Already a lot of hedge and pension fund managers are questioning the Ocado business model and are getting ready to be asked to dish Ocado more cash to inject into this company, that is now starting to question whether the money already pumped into Ocado is going to return in profits and much needed dividends for shareholders.
The jury is out but a company that has reported a billion pounds of losses over a twenty-plus years of being in business, is not a company that is operating well and is not displaying that it is solvent.
Yes, the technology that Ocado has developed is good and impressive, but many companies have developed technological advancements, but it did not save their companies from going bankrupt or out of business altogether.
Maybe some hedge and pension fund managers may need to put their foot down and get a concrete business plan from the Ocado management as to how Ocado will survive on the revenue it brings in, services the debts Ocado owes and gets more business in which doesn't cost Ocado hundreds of millions of pounds in the process but gives returns on their efforts.
By the end of 2023 we will see which way the wind blows and the tide sways before we can make judgement on whether Ocado survives as a whole or gets broken up into various pieces and sold off to companies who know how to make money on the technology side and allow Morrisons and Marks and Spencer to take on the delivery side, which complements their bricks and mortar supermarkets.