“Ocado shrugs off snow with bumper Christmas!”
Just reading that headline was enough to make my heart sink. Ever since the online grocer went public last year, the company has lurched from disaster to disaster.
First they were accused of buying analysts to support the IPO. And then the shares slumped from the 180p offer price to lows of just over 120p in the weeks that followed the listing.
But here I was reading articles in a number of broadsheets claiming that the company “was defying both the snow and the sceptics” after a glowing trading statement.
As one of those confirmed sceptics, I had to ask myself: “Have I got this all wrong?”
No, I don’t think so. In fact I think some of these articles smack of a pretty ugly practice among financial journalists. A practice that leads many a UK investor astray…
Where did this story come from anyway?
Here’s my problem. I think some of these stories read like they were prompted by a news release published by Ocado on Monday. On the face of it, it all looks like great news for Ocado.
But a press release is really just a bit of self-promotion by the company’s spin-doctors, here’s how it generally works…
First of all directors get together with the communications department and decide on a ‘story’ to feed to the press. In this case it’s about fantabulous Christmas sales. These guys are trained in the art of presentation. They know how to write a good story.
And they’ll often include some general information about the company too – something to help the journalist pad the story out a bit. Really, it’s just a bit more promotion…
When the release looks really great, it gets sent over to the smart people at a City public relations company. These are also spin-doctors. Before the story gets released, they need to put the final gloss on the works…without telling any porkies, of course.
Then it gets passed on to their journalist chums.
No wonder it all sounds great
It’s then up to the journalists to take the story and make it interesting for their readers. Some do this by adding a little bit of analysis and maybe doing a bit of digging around to find an interesting angle.
But then again, others do precious little more than just present the story in the same way that it landed on the desk. But I ask you: Is that really journalism? Who actually wrote the story? No wonder it all sounds great, often it’s written by the promoters of the company!
Here are the main points from Ocado’s promotion…errrm sorry… er, press release:
- Annual sales were up by 29%
- Quarterly sales were up by 27%
- Christmas week, sales were up a whopping 44% on last year
- The average basket size was steady at £112 (apparently that was good news)
I have to say, well done Ocado and all that were involved in this great story. Some of the papers really loved it…
But I’ve got a feeling that this is only half the story…
Ocado’s marketing department must have been in overdrive to achieve these figures – imagine how many promotional emails and online ad-space it took to drive all these new punters to Ocado’s shopping trolley. How many free deliveries and ‘£15 off your first order’ vouchers were involved?
And of course we didn’t get any information on profits. This was a ‘good news story’ remember… one to admonish those who question the mighty bankers behind Ocado.
Still, I’ll let you know the key information that they don’t want to give out on a ‘good news day’. Gross profit margins are a pitiful 9%. And by the time they’ve taken their costs off, they end up making a loss on practically every delivery they make. But hey, that’s not a good news story, so shhh.
By the time it comes to revealing the ‘real story’ in the full year figures (which I gather comes out some time in February) they aren’t going to be able to spin their way out of it.
I mean how can Ocado grow from here? So far it has concentrated on the London market. But if it wants to expand to other areas of the UK, it will need to build great big warehouses at enormous cost to fulfil their deliveries. To top it all off, it’s main client – Waitrose – is about to launch a delivery service of its own.
And this is the point….
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Take it all with a pinch of salt
Please remember to take a lot of what you read in the financial columns with a pinch of salt.
Watch out for lazy journalism where the stories come straight from the company itself.
Try and find a few journalists that you can trust. This article didn’t start out as a promotion for MoneyWeek magazine, and I don’t want it to end up as one. But I really do want to make a point. And that is if you aren’t already on MoneyWeek’s mailing list, I really think you should be.
I’ve been an avid reader for about ten years and it’s the one journal that I wouldn’t want to do without. That’s because it’s about as far removed from lazy journalism as I’ve ever seen. Articles are written on the merit of a story and how useful it is to investors – never because a press release simply landed on the desk.
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