Ocado is garnering interest from Amazon according to The Times, with the multinational tech company reportedly considering a swoop for the UK robotics/grocery company, although the rumoured move has raised eyebrows.
Shares in Ocado surged 32% to 569p on reports it “may” be a takeover target for Amazon, with investors buying on this rumour putting the squeeze on short sellers.
But the deal has raised eyebrows among some in The City, with questions asked on where Ocado would fit in the all-reaching Amazon empire.
What does Amazon want with Ocado?
One way the FTSE 100 firm could fit in is from a fulfilment point of view.
Having originally started life as a food delivery service, Ocado has shifted into providing robotics and software for fulfilment centres, with partnerships signed with Marks and Spencer as part of a joint venture, as well as with Kroger’s in the US and Coles in Australia.
“One thing Amazon suffered from in the US with the Whole Foods acquisition is integrating with the supply chain,” said Orwa Mohamed, an analyst at Third Bridge.
“With Ocado, they don’t have to do everything from scratch as it’s a modern and compatible supply chain and fulfilment process.”
However, completing a takeover in excess of £5bn would be much more difficult than entering into a partnership agreement to leverage Ocado’s technology.
Competitors in the US, such as Krogers, may also have something to say about any deal according to Joshua Warner, analyst at City Index.
One school of thought is that the deal may be a way for Jeff Bezos’ company to crack the UK grocery market.
Amazon Fresh stores first hit the high streets here in 2021, but have yet to gain any real market share, with Amazon even halting expansion globally until it can reach a position “where we like the economics,” according to CEO Andy Jassy in its full-year results release.
Retail analyst Nick Bubb believes however that Amazon “needs a store presence, not online capability” in the UK.
Of course, any alleged takeover has huge obstacles, mainly M&S.
Ocado and M&S entered into a joint venture agreement in 2019, and while the partnership hasn’t had the best of times, swinging to a £29.5mln loss in February, the FTSE 100 retailer has shown no signs it is ready to cut ties just yet.
Marks and Spencer reaffirmed the Ocado Retail reset is underway, with the retailer deepening its collaboration.
Part of its growing involvement includes improving the customer experience, introducing cost-cutting measures and leveraging the potential of the M&S customer base through its increased offering.
Amazon’s interest in Ocado is, at least for now, at the early stage. Once something materialises, Amazon’s intentions might become clearer.