The convenience of online shopping is great for customers, but can any companies make decent money out of it? The evidence so far suggests not.
Take Ocado, which has invested £263m in warehouses, vans and technology to create a specialist online supermarket. Last year it had sales of £716m and trading profits of £4.9m – a return on investment of just 1.9%.
Last week’s decision by Morrisons finally to bite the bullet and join the likes of Sainsbury’s and Tesco in selling food online has put Ocado back in the spotlight. Is it a takeover target? Ocado may be worth more to a company like Morrisons or Marks & Spencer, which don’t sell groceries over the internet, than as a standalone business.
Ocado’s technology is held in high regard by competitors, but the main sticking point for any bid will be price. At the current share price of 157p, it would cost someone nearly £1bn to buy Ocado outright.
Unless a buyer could make annual profits of at least £100m (a return of 10%), it’s difficult to see the maths stacking up. So although it may be taken over one day, paying today’s share price for Ocado looks like a risky punt for private investors and corporate raiders alike.
Verdict: avoid