Specialist
Former Head at J Sainsbury plc
Agenda
- Ocado (LON: OCDO), Tesco (LON: TSCO) and Sainsbury's (LON: SBRY) – volume growth impact, capacity constraints and ability to deal with increased demand
- Supply chain challenges and potential cost inflation
- OPEX headwinds, including labour and distribution inflation
Questions
1.
How have the major retailers responded to the huge demand surge in the online market? Could you give an outline for the big four and Ocado?
2.
How would you compare capacity on the collection side – excluding delivery – across Tesco, Sainsbury’s, Morrison’s and Ocado? I believe that is where the bottleneck is, at the moment.
3.
How easy is it to add capacity to meet demand for the retailers with a physical presence vs Ocado?
4.
You say delivery capacity is harder to add. However, Ocado’s management indicates that the business is struggling to process the supply for collections but is not at capacity for delivery. How would you interpret that?
5.
Who has the most driver capacity in the market?
6.
Despite Tesco’s slowdown in top-line growth and loss of market share, do you think its relative dominance with driver capacity and ability to meet more orders could lead to some regaining of market share?
7.
How would you assess market share losses if their infrastructure collapses? Do you think Ocado is reaching that tipping point, based on how it had to shut its website and close down the app?
8.
Do you expect any swing in market share in the online segment across the big four or Ocado, in light of current trading conditions?
9.
How easy is it to add capacity to meet demand? For example, Ocado’s collection capacity in Erith is around 80,000 for March vs 70,000 for February 2020. Could we expect another 10,000 increase MoM for Ocado?
10.
What are the incremental costs for adding capacity?
11.
How easy is it to add modular capacity at Erith?
12.
To what extent is the driver shortage leading to labour cost inflation?
13.
Are there any short-term solutions to add driver capacity to meet current demand?
14.
Sainsbury and Ocado are not accepting new customer registrations, while Tesco is. Why has Ocado had to shut out customer registrations but not Tesco?
15.
Do you think Tesco’s ability to onboard new customers could lead to any market share gains via new customer acquisition?
16.
Is it likely that the online shoppers are shopping across multiple operators?
17.
How would you assess the service quality or accuracy being offered? What are the players’ historic abilities to meet accuracy, and how does accuracy compare across players?
18.
Do you think Ocado’s high accuracy levels will foster further loyalty? Could the lack of accuracy across the additional players lead to any customer churn?
19.
How would you quantify the amount of spend that is shifting online? Is more being spent online for groceries in today’s climate, or is the uptick in online demand equivalent to what is happening for brick-and- mortar, so there is no increase in penetration?
20.
Do you think there could be a structural change where online sustains the 10%-plus penetration?
21.
Is the demand increase driven by greater frequency per order or by a greater average basket size?
22.
How has the mix per basket changed on average, given the increased demand?
23.
Ocado reported sequential drops in average basket size MoM and YoY for the last couple of years or so. Do you think this trend could reverse now, or will the average basket sizes return to normal levels, and continue to reduce YoY after demand also normalises?
24.
When do you think demand might taper off?
25.
Do you expect any share gains for Amazon? It has also had to limit orders due to demand increases.
26.
Do you think there will be any structural shifts with consumers being more willing to shop grocery via AmazonFresh, for instance? Could Amazon become more of a threat to the incumbents?
27.
The 40-60% increase in average basket size must be having a favourable impact on the economics of the model. Is the demand surge likely to lead to a margin increase per order?
28.
Do you think the increased demand could lead to any fixed cost or margin benefits for Ocado, so the orders are more profitable? What dynamics are at play there?
29.
Are the margins further improved by the ability to charge full price for delivery? Ocado has been charging GBP 6.99 which is much more than its traditional rate.
30.
What additional OPEX dynamics are at play? Are there any labour cost increases in CFCs [customer fulfilment centres] which would potentially offset any profitability gains?
31.
Do you think Ocado is more at risk of widespread closures of its sites because of the centralised nature of the business model? If one CFC employee was to get sick, multiple teammates would have to isolate. Is that more of a risk vs physical, brick-and-mortar retailers?
32.
Do you foresee any potential lifting of weight regulations per van at a pan-European or UK level to allow more goods being delivered?
33.
Theoretically, how would 8-9% penetration for online – a couple-of-percentage gain – impact the broader profitability of the brick-and-mortar landscape, given the unfavourable economics of the online channel?
