Ocado Group PLC (LON:OSC) boss Tim Steiner remained tight lipped about media reports the online grocery was in talks about a tie-up with Marks & Spencer Group PLC (LON:MKS).
Last week it was reported that Ocado had been in secret talks about a deal to replace Waitrose with M&S as its main groceries supplier. Ocado’s deal with Waitrose, which is owned by John Lewis Partnership, ends in September 2020.
READ: Ocado said to be considering replacing Waitrose with M&S as key grocery supplier
Ocado has 'good relationship' with Waitrose
Speaking to reporters after Ocado posted a steeper full-year pre-tax loss on Tuesday, Steiner said: “It is our business to talk to retailers and we never comment on who we’re talking to.”
He added: “We have a good relationship with Waitrose.
“In September 2020 we’re still be in business, we’re still be selling 50,000 plus lines to our customers, including high quality own-label products - they may be Waitrose, they may not be Waitrose, we’ll have to wait and see.”
It is understood that Ocado and Waitrose owner John Lewis have had a strained relationship over the years.
One of the founders of Ocado, Jason Gissing, who has since left the business, has told the Guardian that John Lewis was “a complete pain in the arse to deal with” and that the two companies had regular disputes.
Loss widens on investments
The online grocer reported a loss before tax of £44.4mln for 2018, compared to a loss of £9.8mln in 2017, reflecting the impact of heavy investment in technology and warehouses.
READ: Ocado earnings drop in 2018 as it invests in technology and warehouses
Revenue, however, gained 12.3% to £1.6bn. In the retail arm that includes Ocado’s own online grocery delivery service, revenue rose 12% to £1.5bn.
The technology arm, which provides other retailers with the software and warehouses needed to develop their own online grocery business, saw revenue gain 15.8% to £123mln.
With Ocado’s share of the competitive UK grocery market at just 1%, investors see the technology side of the business as key to driving growth and shareholder returns.
Ocado’s shares have more than doubled over the past year after signing deals with supermarkets including Kroger in the US and ICA in Sweden.
No plans to sell retail division, says boss
Steiner said the retail division remained key to attracting technology partners, adding that it was “not a non-core asset that we’re looking to dispose of”.
Patrick O'Brien, retail analyst at data firm GlobalData, said: “To entice further partnerships, it has at least demonstrated that it can make its retail operations profitable in a way that eludes its less tech-savvy competitors.
“While it made £82.5m in retail EBITDA, its margin fell to 5.6% from 6.0%. It is vital therefore that it arrests this margin decline, through increased utilisation of its new customer fulfilment centres and increased efficiencies.”
He added that Ocado is battling against “continued gradual erosion of order size” as increased mobile usage lends itself to more frequent, smaller orders.
Russ Mould, investment director at AJ Bell,” said: “To its credit, Ocado has made clear progress strategically with finding overseas players who want to use its technology. But when you are a FTSE 100 company, failing to make a profit is unacceptable.
“Ocado needs to spell out how material these overseas contracts are going to be to its earnings if it is to win over the army of sceptics.”