Ocado, the company that pioneered online grocery shopping in 2000, has always received mixed reactions from the City.
While some investors back a business with annual sales growth of more than 20%, others have been accused of trying to derail its plans, particularly just before its 2010 flotation. Ocado had set its share price at 200p-275p, but that was cut to 180p hours before its pre-float deadline.
Despite announcing its first pre-tax profit (for the six months to May) of £200,000 in June, its shares recently hit an all-time low. Its customers are loyal and affluent, but the online grocery market is changing fast, with transactional apps and, in Tesco's case, personalised websites. Tesco.com's sales are now more than £2bn, compared with Ocado's 2011 sales forecast of £619m.
The company is innovative, though. Last month it launched a virtual shop in London, allowing consumers to scan barcodes from pictured items using a smartphone. It has also started selling products from French supermarket brand Carrefour this year, and offers 350 items under its own label.
However, with Waitrose bolstering its delivery service and the 'big four' all making major investments, can Ocado attract fresh customers?
We asked Mark Sinnock, ex-marketing director of Asda, and currently Ogilvy & Mather's Asia Pacific regional president for planning, and consultant Tom Hings, former brand marketing director of Britain's biggest delivery specialist, Royal Mail.
Mark Sinnock Ogilvy & Mather (ex-marketing director at Asda)
When Ocado first opened its virtual doors, it offered true innovation in service for the aspiring, middle-class consumer. It built the brand on the promise of 'exclusive convenience' and gave access to the premium Waitrose range, which was limited at the time by the number of stores people could visit.
It also offered time-poor, cash-rich shoppers the ability to order online, and arrange to-the-door delivery. It was a true internet darling. If you shopped at Ocado, it told your dinner party guests that you were at the leading edge of modernity. Even the name plays on a dinner party favourite: avocado.
What has happened since? Most of the energy has gone into the distribution side of the business, leaving the idea of 'innovation' to wither. It took until 2009 to introduce an iPhone app. As a result, Ocado has lost its positioning as an innovative brand, and been overtaken.
Now, Waitrose has dramatically expanded its stores and online delivery, and Ocado finds itself as an also-ran, its promise diluted.
Remedy
- Regroup around 'exclusive convenience'. Find exciting niches and develop a fresh service promise based on the discovery of the latest products for its customers.
- Think beyond grocery. There is no reason why its offer has to be focused on groceries. In essence, Ocado is a logistics company. It has the elasticity to stretch into a whole range of interesting categories.
- Innovate like fury. The leadership of Ocado needs to inspire a fresh wave of innovation. There are plenty of sacred cows in retail that it could target - particularly incentives, pricing, reward and loyalty.
Tom Hings consultant (ex-director, brand marketing at Royal Mail)
Ocado was a pioneer 10 years ago, offering the time-poor consumer an alternative to visiting the supermarket every week. Now, however, the Ocado brand lacks the innovation it once had.
Unlike other supermarkets, Ocado is essentially a delivery service, trading on the appeal of the Waitrose brand.
This is a successful combination; Ocado's sales figures have improved year on year. It seems odd, however, that it should be struggling to achieve decent profits when capacity is constrained.
The Waitrose link has to be its Achilles heel. How do consumers choose between Ocado and one of its chief competitors?
One thing I don't believe is that consumers are bothered whether their groceries have been picked by a shop assistant in a store, as with Tesco and other supermarkets, or by a 'personal shopper' in an Ocado warehouse.
Who will the brand's existing customers choose between Ocado and Waitrose as the latter's own delivery service expands?
Remedy
- Ocado has to communicate a clearly defined and differentiated proposition.
- It must reinforce its superior service credentials. Highlight the fact that it does deliveries in hourly slots; Tesco can't match this. I wasn't aware that, with Ocado, you are able to pick only items that are available, thus guaranteeing fewer substitutions.
- It should look beyond Waitrose products and consider partnering a retailer or manufacturer that reinforces Ocado's green credentials. It should also set up an exit route to either Waitrose or perhaps Amazon, because I am not convinced that service alone can save the brand.