Ocado slides on concerns over Amazon expansion

Online grocery distributor Ocado slumped on Wednesday, with market participants pointing to Amazon’s plans to expand its 'Pantry' grocery delivery service in the UK.

Amazon revealed on Tuesday that it intends to ramp up its UK grocery offering in the new year.

The online retailer launched its Pantry service in Britain in November, offering customers a range of around 4,000 grocery and household products excluding fresh food.

However, the group’s UK boss, Christopher North, said it now plans to add thousands of extra products in coming months, which, if successful, could lead to the expansion of the Amazon Fresh service into the UK. So far, it had only been launched in certain cities in the US.

Atif Latif, director of trading at Guardian Stockbrokers, said that even without any threat from Amazon entering the market, we have seen significant downward pressure on Ocado in the last year, with margin and sales growth likely to continue to be light.

“Given the strong infrastructure and online presence of Amazon, the logistical aspect of them entering the space seems plausible. Given the lack of scale we see at Ocado and the real threat of Amazon, unless management address these issues quickly and reactively there seems to be little thesis to be invested in Ocado.”

However, Goldman Sachs has previously argued the Amazon-related bearishness in Ocado is an unwarranted over-reaction, as Amazon Fresh would hurt bricks-and-mortar retailers more.

At 1000 GMT, Ocado shares were down 6% to 306.40p.