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Ocado chief sceptical about rapid grocery delivery startups’ profit prospects

ocado rapid delivery
Image credit: Ocado

The chief executive of Ocado Retail is unconvinced by the business model of rapid grocery delivery startups and “struggles to see the route to profitability” for companies such as Zapp and Getir.

Startups aiming to deliver groceries in 15 minutes or less have grown quickly during the pandemic. Despite this, most run at significant losses and are heavily reliant on venture capital.

Speaking to The Times, Ocado Retail CEO Melanie Smith said: “I really struggle to see the route to profitability [for rapid grocery delivery startups] and I have a lot of insight into those economics.”

By contrast, she said Ocado’s one-hour Zoom service “can immediately be profitable”.

Ocado’s retail profit came to £104.1m on revenue of £1.22bn in the six months to end of May – a 58.3% year-over-year rise. Ocado Retail – a joint-owned venture with Marks & Spencer – is the consumer-facing digital storefront of the group.

But it took until 2015 for the group to deliver its first annual profit – 15 years after launch.

Despite this, Smith and others remain sceptical about the sustainability of rapid grocery delivery startups. A handful of young companies have raised billions of dollars in funding, with that cash effectively subsidising low-cost deliveries.

Berlin-based rapid delivery startup Gorillas raised “close to” $1bn in October, giving it a $2.1bn valuation just one year after it was founded by CEO Kağan Sümer.

US-based Gopuff is valued at $15bn (£11.3bn) – nearly as much as London-stock exchange-listed Ocado Group at £12.2bn.

Last month Turkey-headquartered rapid delivery startup Getir acquired UK rival Weezy, suggesting that market consolidation may be vital for smaller players to survive.

Ocado Group licences its proprietary technology such as warehouse robots, software and logistics to retailers worldwide. Its profits took a £10m hit this year following a fire at its largest warehouse in Erith, caused by three robots crashing into each other. It was the second fire at its facilities in three years and seventh in total.

Smith added that her goal is for Ocado to become the “number one grocer in the UK”. However, the company currently has a 1.8% share of the market.