Ocado - comment
Sobeys' decision to pause construction of its fourth Customer Fulfilment Centre (CFC) is a negative for Ocado. We still believe in the trend towards online shopping, although at a slower pace than previously hoped. If Sobeys is willing to cut its commitment to opening CFCs, could other clients follow suit? Alternatively, Ocado can fill in the gap through further customer acquisitions.
The cash flow impact of the pause will be positive in 2024/25 as we estimate a lower capex of £40m, but Ocado will lose £150m in fees over the (10-year) life of the CFCF. The pause does not impact the three CFCs that Sobeys already operates. The end of the exclusivity agreement allows Ocado to replace the lost fees.