Ocado surges on rumours of Amazon bid

Shares in Ocado were flying on Tuesday morning as rumours of a bid from Amazon resurfaced.

The US internet retail giant was reported to be working on a potential approach for the FTSE 250 online grocer as part of its Amazon Pantry and Amazon Fresh plans for food deliveries in the UK, according to the Daily Mail, resuscitating a rumour that had also emerged earlier in the month.

Ocado’s chief executive, Tim Steiner, has previously stated his enthusiasm to join forces with cash-rich Amazon.

Rumblings last year about Amazon's entry into the UK online grocery market have seen Ocado become the second most shorted stock in the FTSE and knocked its shares from 450p last summer to a year's intra-day low below 240p on Monday.

Shares in Ocado were up 18% to 287.2p by mid-morning on Tuesday.

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

The following month, Amazon's UK boss Christopher North revealed plans to ramp up the e-tailer's UK grocery offering in 2016, with thousands of extra products added.

He told the Guardian newspaper that if Pantry proves a success it would be likely to lead to the expansion of the Amazon Fresh service into the UK, which had only so far been launched in certain cities in the US.

North said: “When we believe we have got the offer right, and the economics, we will roll it out internationally.”

If the rumours were true, Amazon may have its eye on Ocado for its skills in warehouse automation, with two of the largest automated grocery fulfilment centres in the world, although the London-listed company would be happy to provide this expertise as a service.

In an interview with ComputerworldUK last year, Ocado’s CTO Paul Clarke said that when it comes to food, Ocado has more automation in its warehouses than even Amazon, processing over 150,000 orders a week.

“There is nobody, as far as we know, anywhere in the world, with our level of automation when it comes to these grocery fulfilment centres,” he said.

However, despite much big talk from the company about partnerships with multiple overseas retailers for the company's highly regarded Smart Platform technology, with Steiner targeting the signing a first agreement "during 2015", the lack of anything concrete has undermined confidence in the stock.