Ocado floats on supply chain reputation

19 July 2010

19 July 2010 | Lindsay Clark

Online grocery retailer Ocado is promoting its supply chain quality as a selling point as part of its planned stock exchange flotation.

The prospectus for the initial public offering says Ocado is the only UK online supermarket that provides all of its services from a dedicated warehouse. “The directors believe that Ocado’s aggregation of scale, removal of a layer of the supply chain and automation of the distribution centre provide clear service and cost benefits to the business and its customers,” it says.

However, the prospectus, which values the firm at around £900 million, also gives details of risks in the supply chain, which relies on long-term partner Waitrose for many products.

“If, for any reason, Waitrose ceased to supply Ocado with such products… or if Waitrose were to suffer reputational damage which impacted [its] brand, there could be an adverse effect on [Ocado’s] financial condition and future prospects,” it adds.  

Alan Day, managing director of risk management consultants State of Flux, said: “It’s quite exciting that, essentially, a supply chain business is floating, but it does seem to carry quite a lot of risk. [Ocado] is like the Amazon of food retail, but Amazon has control over its supply chain.

“The main selling point is that it has a world-class warehouse and online capability. But if it lost Waitrose, it would quickly have to find a supplier to pick that up again. You are only world-class for a certain amount of time.”

Ocado was not available for further comment due to stock market rules. Dealing in shares is expected to start later this week.

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