Ocado’s appointment of Stuart Rose as chairman welcomed by City

By Mike Stones

- Last updated on GMT

Knight shift: Sir Stuart Rose faces tough online challenges in his new role, said Shore Capital
Knight shift: Sir Stuart Rose faces tough online challenges in his new role, said Shore Capital
Online grocer Ocado’s appointment of former Marks & Spencer (M&S) boss Sir Stuart Rose has been welcomed by City analyst Shore Capital, while acknowledging the challenges he faces.

Shore Capital analysts Clive Black and Darren Shirley said: “It is with some considerable surprise, pleasure and fondness that Shore Capital learns of Sir Stuart Rose's appointment as chairman of Ocado from March 2013. Perhaps this explains why the shares have been moving up recently?”

But Black and Shirley went on to acknowledge the size of the challenge Rose faces in his new role. While noting Rose’s comments that he had been "impressed"​ by Ocado’s progress, the analysts said: “We believe it has been pretty disastrous for shareholders.”

Rose said: “I have been very impressed at the impact and progress Ocado has made to date. As retail goes through a fundamental shift into the digital world, I believe Ocado's model and the high standards of customer service it provides will see it emerge as a powerful online player.”

Fundamental shift to digital

But Shore Capital questioned Ocado’s ability to achieve that position in a tough and competitive market. While Ocado’s rate of sales growth was sound, it was behind that of all of its UK competitors, said Black and Shirley.

However, Rose has the charisma and experience “to bring much-needed esteem to Ocado, a company that had a tarnished flotation to our minds and has a fundamentally flawed business model”,​ they added.

“To use a football analogy, this appointment has the feel of Harry Redknapp joining Queens Park Rangers from Tottenham Hotspurs. Where would one rather be? A touch of the Harry Redknapps?”

'A touch of the Harry Redknapps?'

The challenges facing Ocado were that the cost of competing and the cost of fulfilment were too high. That led the firm to make “meagre cash flows and no earnings, never mind dividends”.

Ocado faced stiff competition in the form of  ‘click and collect’ services offered by the major supermarkets and Waitrose’s “stellar online progress”.

Responding effectively to those challeges would require the commission and operation of a new fulfilment centre in the very near future, said Black and Shirley.

 ‘Far too wise’

Shore Capital discounted suggestions that Rose’s previous employer M&S was about to bid for Ocado, describing senior management as “far too wise” ​to make such an offer.

Neither did it expect under-pressure supermarket Morrisons to make a bid.

Shore Capital repeated its ‘sell’ advice on Ocado stock.

Meanwhile, departing chairman Lord Grade said: "After six exhilarating and eventful years, I am leaving the company in the best possible hands. Sir Stuart's substantial retail experience and commercial acumen will add significant value. Ocado is one of the most innovative and exciting growth companies in the UK and it has been a privilege to be a part of their story."

Last week, Ocado reported a 14% rise in gross sales for in the six weeks to January 6 compared with the same period a year ago.

Shares in the business closed at 95p on Monday (January 21), valuing the business at £550M. Shares have risen by 40% over the past three months. 

Related news

Show more

Related products

show more

Emerging Risks: Preparedness in Food Manufacturing

Emerging Risks: Preparedness in Food Manufacturing

Risk and Resilience | 04-Sep-2017 | Technical / White Paper

This paper argues the need for organisations and value chains in the Food Manufacturing Sector to reconsider how they view risk management and resilience...

7 steps to defend your food business against risk

7 steps to defend your food business against risk

Authenticate IS | 22-May-2017 | Technical / White Paper

The next food industry scare could be just around the corner, is your business ready to defend itself?Given the complex, global nature of today’s supply...

your free 2017 calendar to start planning…

your free 2017 calendar to start planning…

William Reed Business Media | 14-Dec-2016 | Infographic

Food Manufacture Group delivers a highly qualified and established audience within the UK food and beverage manufacturing industry.   Our portfolio - including...

Related suppliers

Follow us

Featured Events

View more

Products

View more