Ocado Share Price Soars Amid Amazon Takeover Speculation

Shares in U.K. online grocery fulfilment specialist Ocado soared by as much as 40% at one point Thursday, amid increasing speculation that the retail technology group could be a takeover target.

In their second day of significant gains, Ocado shares briefly touched $8.06 from $5.49 at Wednesday’s close of trading, before falling back to stand around $7.15 currently, up around a third.

The rally sent the shares in the company – which has major tie-ups with Marks & Spencer in the U.K. and Kroger
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in the U.S. – to their highest level since its last results update in March, taking Ocado’s market value to more than $5.74 billion at one point.

The leap in its share price came after market rumors gathered pace that a number of major U.S. tech firms are eying up a bid for the company at possibly a bargain price, notably retail behemoth Amazon
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.

Before we get ahead of ourselves, firstly there’s nothing new there.

Amazon has previously been suggested as a potential buyer of Ocado for years, and the online giant was reportedly also at one point interested in John Lewis Partnership’s upscale grocery operator Waitrose, which ended its 20-year fulfilment partnership with Ocado back in 2020.

The connection is obvious. Both Amazon and Ocado see themselves as technology companies rather than retailers. Both believe in automation and Ocado has a long trcak record in the one area Amazon continues to struggle with, groceries.

Ocado Share Price Leap

It’s also worth remembering that even after the most recent spike, Ocado’s share price remains about 40% down on the heady levels reached during Covid, when it became one of the stock market stand-outs as lockdowns saw consumers switch to online groceries.

However, Ocado has seen sales dip as the pandemic effect subsided and consumer behavious did not stick, with many households returning to their usual supermarket routines.

In February, Ocado reported a record annual loss of over $637 million for 2022, while revenues at Ocado Retail, its joint venture with U.K. retailer Marks & Spencer, disappointed as they fell off by nearly 4%.

In response, the company said it was holding back the introduction of new distribution centers in the U.K., slated for the northwest and southeast of England, reflecting “a more prudent and disciplined approach to capacity roll-out”.

And in April Ocado Retail announced it was to close its oldest warehouse in Hatfield, just north of London, and shift distribution nearby.

Ocado Stock Raises Interest

With Ocado’s share price in the doldrums, it appears third parties, including it would seem Amazon, may still see value in the brand, its cutting-edge technology and infrastructure.

Although Ocado’s hopes of becoming an online groceries superpower across the globe have failed to materialize, U.S. supermarket group Kroger is committed to building more automated warehouses in partnership with Ocado despite slowing the roll-out , Ocado CEO Tim Steiner insisted earlier this year.

Ocado struck a deal with Kroger in 2018 to help it ramp up its delivery business using the construction of robotically operated warehouses. The initial deal saw Kroger target 20 sites to build automated customer fulfilment centers.

Kroger is currently live with eight of those sites, with 16 locations ordered so far.

“They are committed to building more, they just want to make those [existing] ones work as well as they can before they roll out loads – very sensible thing to do,” Steiner said, while discussing Ocado Group’s online supermarket joint venture with Marks & Spencer.

“They expect to have loads of these warehouses. But when you do something new, you need to make it work really well before you scale it up massively.”

Steiner said that he is convinced online penetration of the U.K.’s grocery market – which has remained stubbornly low – will increase from the current level.

The tech giants appear to agree and Ocado’s long heritage and reputation for innovation could yet see it go in someone’s basket.