business

Ocado Holds Talks With Several U.S. Grocers After Amazon Deal

  • Amazon’s acquisition of Whole Foods has raised interest: CEO
  • Ocado has been trying to secure major licensing deal for years

Why the Amazon-Whole Foods Deal Is a Game Changer

Ocado Group Plc Chief Executive Officer Tim Steiner said the U.K. online grocer’s chances of licensing its technology to a U.S. counterpart have been boosted by Amazon.com Inc.’s acquisition of Whole Foods Market Inc.

The $13.7 billion deal “is a positive move for our solutions business and we’ve seen increased interest from players in the U.S.,” said Steiner, who for years has been talking up the potential for international partnerships, though so far has only signed up an as-yet unidentified regional European retailer. Ocado is holding conversations with a number of U.S. grocers, he said.

Tim Steiner

Photographer: Chris Ratcliffe/Bloomberg

Amazon’s agreement to buy Whole Foods has caused skeptical U.S. supermarket operators to rethink the potential size of the online market, according to Steiner. Only about 1 to 2 percent of the U.S. food retail industry has moved online, a figure that may rise to 6 percent over the next five years, Stifel Nicolaus & Co. analyst Marc Astrachan has estimated.

Steiner made the comments as Ocado reported a 9.4 percent drop in first-half pretax profit due to an increased depreciation charge linked to the opening of a distribution center in Andover, England. The company had already given an indication of the results when it announced a 200 million-pound ($258 million) bond sale last month.

The shares rose 1.2 percent to 293.1 pence at 9:04 a.m. in London, after initially gaining as much as 5.5 percent. The stock trades at 128 times its projected earnings over the next 12 months, according to Bloomberg data, a valuation that “perhaps necessitates the execution of further service agreements with other international retailers sooner rather than later,” Shore Capital analyst Clive Black said by email.

Ocado’s so-called smart platform encompasses everything from robots that pick groceries to software that routes delivery vans. The Hatfield, England-based company generates minimal profit from its own retail business and securing licensing deals is crucial to justify years of investment and secure more profitable growth.

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