Ocado tanks as Canadian partner Sobeys pauses launch of Vancouver warehouse

Ocado tumbled on Thursday as it said the planned launch of North American partner Sobeys' customer fulfilment centre in Vancouver had been paused and that the two have agreed to end terms related to mutual exclusivity.

The go-live of Canadian grocer Sobeys’ fourth customer fulfilment centre (CFC) was originally planned for 2025. Ocado said the timeline will be under regular review and the site will be able to commission and scale quickly when required. Ocado refers to its automated warehouses at CFCs.

The company noted that its partners in North America - Kroger and Sobeys - have both announced strong growth in digital sales in their latest quarterly results.

"With Ocado Retail the fastest growing grocer in the UK today, there is clear evidence that online is returning overall to being the fastest growing channel in grocery," the company said.

"As the online channel accelerates Ocado is supporting its partners to grow volumes and expand profitably, drawing on the experience of more than 20 years operating and growing an online grocery retailer in the UK, one of the world's most competitive grocery markets."

As part of this programme, Ocado and Sobeys have decided for now to focus their joint resources on driving order and sales volumes across the current network. This currently comprises three live CFCs in major Canadian markets, across Toronto, Montreal, and Calgary, and manual fulfilment solutions in nearly 100 stores.

Ocado also announced that it had agreed to end terms related to mutual exclusivity with Sobeys.

The online supermarket and grocery technology business said its financial guidance for FY24 remains unchanged, along with its target to be cash flow positive in the mid-term.

It expects the capital expenditure related to the material handling equipment deployment for Sobeys’ CFC4, originally expected to be incurred across FY24 and FY25, to be deferred.

Ocado shares closed down 13% at 306.30p.

Dan Coatsworth, investment analyst at AJ Bell, said: "It’s a case of one step forward, three steps back with Ocado. Two days after Kantar data showed Ocado to be the fastest growing grocer in the UK for the fourth month in a row, the company has now been dealt a massive blow in Canada.

"One of Ocado’s key partners in North America, Sobeys, says it is not going ahead with plans to open a new customer fulfilment centre in 2025. Given that Ocado is the systems partner for this development, the decision to halt expansion is disastrous for the UK partner. It’s no wonder Ocado’s shares slumped on the news as the dominoes are starting to fall.

"It puts a spotlight on an underappreciated risk - what if other customers also slow down or halt their expansion plans? This is already in motion as Kroger said in March it would close various Ocado-powered sites in the US. Bad news comes in threes, so the market is now worried about who could be next to derail Ocado.

"The stock fell to a seven-year low as today’s news piled onto existing market concerns about the company’s growth prospects. All the share price gains generated by the hype around Ocado supposedly revolutionising the grocery sector have now been wiped out.

"Ocado was meant to have been the magic ingredient in a structural shift for grocers to use robots to make warehouses more efficient and support a surge in online orders. The opportunity didn’t materialise as expected and Ocado has only managed to sign up a few new deals in recent years, despite the pandemic demonstrating the need to have strong systems to support online demand."