Sobeys to expand online grocery business by tying up with Britain’s ecommerce giant Ocado
Canada’s second largest food retailer Sobeys Inc has signed a deal to use the ecommerce platform of Ocado to expand its online business, sending shares in the British group up 10 per cent on its latest international tie-up.
Ocado, which has helped drive online shopping in Britain, one of the world’s most advanced ecommerce markets, has been to trying to sell its proprietary technology to international supermarkets in recent years, with new deals seen as key to the company’s valuation.
Ocado’s shares jumped 12 per cent in early trading on Monday, building on gains it recorded in November when it announced a deal with French supermarket Group Casino.
“Channel shift to online in North America is gaining pace as consumers increasingly seek the benefits of grocery shopping from the comforts of their own homes, and as retailers attempt to offer services to meet this growing customer trend,” said Luke Jensen, CEO of Ocado Solutions.
Under the Sobeys deal, the two companies will develop a customer fulfilment centre (CFC) in Toronto and will also consider developing more centres in dense urban areas.
Ocado said it expects the deal to be earnings neutral in the financial year ending in November and sees additional capital expenditure of 15 million pounds (US$20.8 million), with more spending expected in future years.
Sobeys operates more than 1,500 stores across Canada and recorded sales of $23.8 billion last year.
“The (North American online grocery) market is growing, there are a lot of buyers there, and we definitely see an opportunity,” Ocado Chief Financial Officer Duncan Tatton-Brown told reporters, regarding potential future deals.
In a joint statement the companies said Ocado would help Sobeys to build a website and mobile service. It will also design and construct an automated warehouse built specifically for grocery ecommerce, using Ocado’s grid and robots network.
Ocado’s technology will also be used to manage Sobeys’ delivery system and customer service.
“Our end-to-end ecommerce solution will allow Sobeys to build an online offer in a manner that is profitable and creates exceptional value for our customers, investors and supplier partners,” said Michael Medline, president and CEO of Sobeys.
The deal will come as a boost to Ocado, as speculation grows that competition could intensify in Europe after the acquisition of Whole Foods by Amazon.
RBC Capital Markets analyst Sherri Malek said Ocado was well placed for growth in the online grocery market.
“Ocado is the only global provider of an end-to-end platform solution for online grocery retailing … this will become increasingly recognised by retailers globally, leading to a number of deals being signed with Ocado over time,” Malek said.
RBC rates Ocado as “Sector Perform”, Its valuation assumes Ocado could sign six international deals, RBC said.
© Thomson Reuters 2018