July 5, 2017 / 9:06 AM / 21 days ago

Amazon/Whole Foods deal piques U.S. interest in Ocado

4 Min Read

FILE PHOTO: A general view shows conveyer belts transporting crates filled with packed bags inside the Ocado Customer Fulfilment Centre in Hatfield on the outskirts of London, Britain, April 6, 2016 .Dylan Martinez/File Photo

LONDON (Reuters) - British online grocer Ocado has seen a pick-up in enquiries from U.S. supermarket groups interested in possible partnership deals in the wake of Amazon's $13.7 billion deal to buy Whole Foods, its boss said on Wednesday.

Ocado Chief Executive Tim Steiner said Amazon's purchase of the upmarket grocer had made existing bricks and mortar supermarket players in the United States think harder about the competition they will be facing in the coming years.

"Therefore we’ve seen increased interest in our (technology) solution from players in the U.S.," he said after Ocado reported a 2.7 percent rise in first half core earnings. Ocado pioneered the use of software and automation to pick online grocery orders in huge warehouses, rather than by hand in stores.

Amazon's takeover of Whole Foods has brought renewed focus on online grocery shopping in Britain, where it accounts for 7.6 percent of total grocery sales and is growing by over 10 percent a year, according to researchers Kantar Worldpanel.

Ocado has a UK grocery market share of 1.3 percent.

Some analysts believe the Amazon/Whole Foods deal increases the chances of an Amazon takeover of Ocado or of a partnership deal, or of other U.S. grocers seeking Ocado's technology.

But others argue Amazon's purchase of Whole Foods, a traditional retailer, makes Ocado its least likely UK target.

"We’ve never been trying to sell ourselves ... It’s not a focus of ours to try and sell the business," said Steiner.

He dismissed the suggestion that Amazon's acquisition of Whole Foods was an admission by the world's biggest online retailer that stores are required for food retailing.

"I think they (Amazon) just bought a player in the U.S. that has a very high quality recognized brand name and recognized sourcing," he said.

"I don’t think they know yet what their model’s going to be ... I imagine they bought it as a stepping stone towards their future ambition."

Ocado, founded by three former Goldman Sachs bankers in 2000, has divided analysts like few other stocks, with some viewing its home deliveries from giant distribution centers as the future of grocery shopping and others seeing it as a costly and complicated venture that will never make sustained profits.

Partnerships with retailers overseas are seen by analysts as the key influence on Ocado's stock market valuation.

Last month, Ocado clinched a long awaited first overseas deal with an as yet unnamed European retailer.

It said on Wednesday that deal would be "the first of many."

"Grocery retailing is changing and we are ideally positioned to enable other retailers to achieve their online aspirations," said Steiner.

Ocado, which sells products supplied by upmarket grocer Waitrose and also has its own distribution agreement with Morrisons, made earnings before interest, tax, depreciation and amortization (EBITDA) of 45.2 million pounds ($58.3 million) in the 26 weeks to May 28. That was ahead of analysts' average forecast of 44.8 million pounds.

Retail revenue rose 12.5 percent to 659.6 million pounds.

Ocado published results for the first 22 weeks of the period last month.

Shares in Ocado have had a rollercoaster ride since listing at 180 pence in 2010. They have risen 11 percent so far in 2017 and were up 0.8 percent to 291.9 pence at 0850 GMT, valuing the business at 1.85 billion pounds.

($1 = 0.7749 pounds)

Editing by Paul Sandle and Mark Potter

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