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Ocado seeks £1 billion in funding as Covid-19 drives online retail boom

Ocado natural gas

Online supermarket Ocado is seeking to raise over £1 billion in funding as it seeks to capitalise on the boom in online shopping driven by Covid-19.

The grocer opened applications on 10 June for investors, saying the proceeds would be used to “move quickly and to capitalise on the full opportunity set over the medium term”.

Ocado’s most recent financial results on 6 May revealed that revenue in its retail division had grown 40.4% in the second quarter, compared to 10.3% growth in the first quarter. The company was forced to scale up capacity at its automated distribution centres in order to meet a sudden surge in demand, with some customers turned away due to a lack of online slots.

While Ocado predicts that the long-term shift to online grocery will “accelerate” post-crisis, it also cautions that the impact of the crisis on customers’ incomes means accurate forecasts are difficult.

Ocado’s other division, which sells its automation technology to grocers in other countries, is seeing robust demand, with customers including Casino (France), Coles (Australia), Kroger (USA) and Empire (Canada).

The high level of automation built into Ocado’s business model means that it is hard for it to scale up demand to meet spikes, when other grocers could hire more staff.

In October, investment firm Jeffries raised doubts about the relevance and viability of the Ocado fulfilment model to countries with more distributed populations than the UK. It argued that micro-fulfilment (MFC), in which smaller fulfilment centres are situated closer to the customers, offered a better return on investment than the centralised fulfilment model favoured by the Kroger-Ocado partnership. It said the former model was less capital-intensive and more easily scaled.

It said Ocado’s centralised model worked well in the UK but it would be less suitable for the US due to lower population density and less favourable income demographics for Kroger markets.