Forward-looking Statements emerging superstores and hypermarkets through the lure of even

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Transcript of Forward-looking Statements emerging superstores and hypermarkets through the lure of even

  • Barclays Consumer Conference

    7th September 2015

  • Forward-looking Statements Disclaimer

    2

    This presentation contains oral and written statements that are or may be “forward-looking statements” with respect to certain of Ocado’s plans and its current goals and expectations relating to its future financial condition, performance and results. These forward-looking statements are usually identified by words such as ‘anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’ or other words of similar meaning. By their nature, all forward-looking statements involve risk and uncertainty because they are based on current expectations and assumptions but relate to future events and circumstances which may be beyond Ocado’s control. There are important factors that could cause Ocado’s actual financial condition, performance and results to differ materially from those expressed or implied by these forward-looking statements, including, among other things, UK domestic and global political, social, economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, the possible effects of inflation or deflation, variations in commodity prices and other costs, the ability of Ocado to manage supply chain sources and its offering to customers, the effect of any acquisitions by Ocado, combinations within relevant industries and the impact of changes to tax and other legislation in the jurisdictions in which Ocado and its affiliates operate. Further details of certain risks and uncertainties are set out in our Annual Report for 2014, which can be found at www.ocadogroup.com. Ocado expressly disclaims any undertaking or obligation to update the forward-looking statements made in this presentation or any other forward-looking statements we may make except as required by law. Persons receiving this presentation should not place undue reliance on forward-looking statements which are current only as of the date on which such statements are made.

  • Contents

     Ocado at a glance  Online grocery: opportunity and challenge  Ocado’s unique business model  Intellectual property, technology and strategic customers  Summary

    3

  • Award winning customer proposition Commercialising knowledge

    Unique business model Proprietary intellectual property

    • No stores, centralised fulfilment • Highly automated • Technology driven

    • Write and develop all software • Proprietary, physical fulfilment

    asset solution • End to end fully integrated

    system for online grocery retail

    • Morrisons first external customer • Running morrisons.com, launched

    Jan 2014 • Targeting international

    opportunities

    Ocado at a glance

    World’s largest dedicated online grocery supermarket

    Online Supermarket of the Year 2015

    Voted Best Online Grocer for sixth consecutive year

    Best Online Grocer for Vegetarians 2015

    Best Online Supermarket 2015

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  • 427 551 643

    719 843

    972

    FY09 FY10 FY11 FY12 FY13 FY14

    5

    A leading UK online grocer and growing…

    Ocado continues with strong retail sales growth (£m)… …ahead of competitors

    +96% 15.7% 15.4%

    9.1%

    1.2% 0.6%

    -1.3% -1.3% -3.5%

    UK Grocery Sales (12 Weeks ending 21st June 2015¹) Year-on-Year % Change

    ¹Source: Kantar Worldpanel, Ocado (1H 2015 figure), retail gross sales

  • Contents

     Ocado at a glance  Online grocery: opportunity and challenge  Ocado’s unique business model  Intellectual property, technology and strategic customers  Summary

    6

  • 1 Source: IGD, data is year to April 2015

    The grocery market is substantial Online fastest growing segment set to almost double by 2020

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    Annual retail spend in the UK¹

     The UK grocery market represents over half of

    annual retail spend in the UK  Growth traditionally driven by ‘space race’ model  Hyper- and supermarkets reporting slowing

    growth or decline

    4.1

    8.9

    17.2

    2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

    Online grocery market size by 2020 (sales, bn)

    Online forecast to be 9% of grocery retail by

    2020

     Online and discount to account for 80% of industry growth in next five years

     Channel shift away from physical stores supported by advances in technology

    Other 49%

    Grocery £178bn1

    51%

  • The opportunity – channel shift to online UK Grocery retail industry is undergoing significant change

    Retailers started to build larger stores out of town, and attracted customers to these emerging superstores and hypermarkets through the lure of even greater range and lower prices.

    The next channel shift is online. Other retail segments migrated to online with significant impact. Customers shopping online for their groceries in increasing numbers. Ocado built its business to be at the forefront and benefit from, this next channel shift in grocery.

    Prior to the 1950s, groceries sold in small stores, limited ranges and prices set by suppliers under retail price maintenance (“RPM”).

    Introduction of self-service in 1950s, customers picked own products rather than being served “over the counter”. RPM abolished in the 1960s giving rise to price competition, different product categories, emergence of supermarkets in the high streets.

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    Channel shift supported by technology – over 50% of

    Ocado check-outs by mobile device

  • The challenge of online in grocery

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    Product Shelf Home

    Retail mission

     The retail mission is to get the product from supplier to the customer’s home

     Traditional operating model only completes half of the mission

     Online completes the entire mission, but comes at additional cost

    Even lower margins

    Store cannibalisation

    Low margin industry

    Additional costs for

    online

     Grocery is a low margin industry

     Utilising existing assets (ie stores) for online adds significant costs to an existing low margin operating model

  • Contents

     Ocado at a glance  Online grocery: opportunity and challenge  Ocado’s unique business model  Intellectual property, technology and strategic customers  Summary

    10

  • Ocado’s unique model meets the challenge Developing the best platform for online grocery retailing

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    Key features of operating model

     Pure-play online operator, no physical legacy stores

     Aggregation of scale into single facilities, where all stock is held and all customer orders are picked

     Automation of many processes

     Application of Proprietary Technology

    Offers leading customer proposition

    Drives operational efficiency

    Optimizes capital efficiency

    Clear focus on removing cost

    1

    2

    3

  • Driving operational efficiency

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    1 Focused on removing costs vs traditional retail model

    • No need for DCs/RDCs but larger centralised facilities

    • Automated processes of receiving and putting away stock

    • No physical check-out

    • Significantly lower product waste

    • Significantly lower property/ occupation costs e.g energy use

  • 115

    150

    162 190

    2009 2012 2015 Projection

    Drops per van/ week

     Trunking costs decrease with more CFCs/ spokes in existing geography

     First customer closer to spoke as more spokes open

     DPV increase as customer density improves, thereby reducing delivery costs

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    Our hub and spoke system provides reach, scale and further efficiencies

  • Our operational efficiency continues to improve due to scale & investment

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    111 121 135

    145 153

    FY11 FY12 FY13 FY14 1H15

    CFC Efficiency (UPH) Units per hour of labour

    145 152 160 163 162

    FY11 FY12 FY13 FY14 1H15

    Delivery Efficiency (DPV) Drops per Van

    0.7% 0.7%

    1.0%

    0.8% 0.7%

    FY11 FY12 FY13 FY14 1H15

    Wastage % of Sales

  • Once at scale . . . A virtuous cycle turns online into mainstream channel

    • Store densities fall

    • Volumes decline further

    • Less scope to improve customer proposition

    • Fixed costs increase as % Sales

    • Online growth accelerates decline

    O nline m

    igration

    Store based vicious spiral

    15

    Ocado’s virtuous cycle

    Lower prices, wider range generates faster

    growth

    Growth allows further investment into

    customer proposition

    Growth further erodes buying power

    disadvantage

    At scale logistics cost benefit outweighs

    buying power disadvantage

    Cost base erodes

    Virtuous Cycle

  • Optimizing