Why would Amazon want to buy Ocado?


In a flurry of market activity, Ocado Group, the pioneering but loss-making grocery company, has become a highly sought-after acquisition target for major players in the technology sector. Rumors of interest from US tech giants, including Amazon, have sent Ocado’s share price soaring, prompting speculation about the future of the company and its potential suitors.

The Times first reported on the bid interest, causing a remarkable 32.5% surge in Ocado’s shares. The article mentioned Amazon as a potential buyer, alongside other influential US technology companies. While no official confirmation has been provided, the report identified Goldman Sachs and JP Morgan as banks working on the prospective bid.

Ocado’s stock had experienced a significant decline following the COVID-19 pandemic, with slowing UK sales and continued losses contributing to an 85% drop from its peak in February 2021. The recent surge in share price, fueled by acquisition rumors, brought it back to its February levels. However, the current trading price remains approximately 300p lower than the reported bid price of 800p per share.

What makes Ocado an intriguing prospect for potential acquirers is its established presence in the online grocery and automation sectors. With a headstart on these fronts, Ocado has already made significant strides in the industry. In fact, this is not the first time Amazon has considered acquiring the company. In 2016, former Amazon executive Brittain Ladd recommended that Amazon make a significant move in the grocery sector by acquiring either Ocado or Whole Foods Market. Amazon eventually chose to acquire Whole Foods the following year.

One of the key assets that could be of interest to potential buyers is Ocado’s robot picking grid technology, which is not only utilized within its own retail operations but is also employed by major supermarkets worldwide. The adaptable nature of this technology makes it suitable for picking various small items, aligning with Amazon’s diverse product offerings.

The potential acquisition of Ocado would also involve acquiring 50% ownership of Ocado Retail, the online supermarket joint venture with M&S. This acquisition could provide valuable data and online market share in the UK, allowing the buyer to make significant strides in the grocery sector.

While Amazon remains the primary focus among potential suitors, other players have also been identified. Former Amazon senior executive Brittain Ladd suggests that at least 12 companies could benefit from acquiring Ocado, including Target, Kroger, Instacart, Dollar General, Walmart, TikTok, Microsoft, Google, Meta, Autostore, DoorDash, and Uber.

The acquisition of Ocado would undoubtedly raise questions regarding data rights and potential conflicts with existing retail partners. Rivals like Kroger, who currently utilize Ocado’s technology, may reconsider their relationship with the company if it becomes Amazon-owned, leading to potential legal disputes or data-sharing concerns.

For Amazon, an Ocado acquisition would open up new possibilities in its grocery ambitions. It would provide an opportunity to rapidly expand its customer fulfillment centers (CFCs) across the US and beyond, facilitating hyperlocal same-day grocery delivery through Ocado Zoom facilities. Smaller grocers could also benefit by utilizing Ocado’s platform, potentially forging partnerships with Amazon for fulfilling online and kerbside orders.

However, any assimilation of the Ocado brand into Amazon’s ecosystem would require careful consideration. While the association with Ocado and M&S could enhance consumer perceptions about Amazon’s commitment to quality food, Amazon would need to weigh the potential impact on its own brand perception in the grocery sector.

Regulatory approval and competition concerns would be significant hurdles to overcome in any potential acquisition. Authorities in the UK and the US would likely scrutinize the deal, particularly in terms of data sharing. Additionally, Ocado’s current share price may not accurately reflect the future potential and cash flows of the business, potentially discouraging long-term shareholders from selling their stakes.

As the speculation surrounding Ocado continues to grow, only time will tell whether a major tech giant will seize the opportunity to acquire the pioneering grocery company. The potential implications for the industry and consumers are substantial, and the outcome of these discussions will undoubtedly shape the future landscape of online grocery and automation.

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