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Ocado raises £578m to support automated warehouse division

Ocado technology

British online grocer Ocado has raised £578m from investors on the public markets to fund the development of its technology division, which licenses its automated warehouse technology to other brands.

On Monday Ocado placed £575m of shares on the market at a discounted 795p a share, raising an additional £3m from senior management. It follows the technology and retail group’s £1bn capital raise in 2020. Seperately, Ocado has raised £300m in a loan facility from banks.

However, Ocado’s latest raise comes at a more difficult time for the firm than when business was booming during the height of the pandemic.

Ocado’s credit rating was recently downgraded by the US credit agency Fitch from stable to negative. Fitch said it expects the shopping delivery company to take a while to turn its tech investments into profit.

“Our rating reflects the growing scale, upfront investments and execution risks associated with the progress on 40 of its international [distribution centres] over the next four years,” said Fitch.

Ocado’s technology bets yet to pay

Founded in 2000, Ocado has been a long-time proponent of using automation to increase the efficiency of grocery services, developed its latest robots to supplement warehouse workers back in January.

But its technology bets, overseen by Ocado Solutions, are yet to pay off, with the company generating a profit just three times in its 22 years of operations.

Ocado has seen its share price plummet by more than half over the last year, dropping from 1,957p in June 2021 to 839p as of today.

The company has faced stiff competition in the last few years from the rise of rapid grocery delivery startups, which have increased the pressure on delivery speed and profitability.

However, these heavily backed startups have also found profits difficult to come by, with Getir and Gorillas both announcing significant job cuts in the last month.

Ocado management has previously expressed scepticism over the longevity and profitability of rapid delivery companies.

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

Despite the problems faced by the rapid delivery startups, the efficiency in their service has forced Ocado to “invest in innovation at a faster pace” according to the chief executive Tim Steiner.

Last month, Ocado projected significantly slower sales growth compared to its previous assessment, with the cost-of-living crisis and post-pandemic delivery industry drop-off contributing.

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