- The Observer, Sunday 28 March 2010
Ocado, the internet grocers, has ambitious plans to develop a vast distribution centre creating 2,200 new jobs.
Internet grocer Ocado is set to create 2,200 new jobs at a vast new distribution centre to be built using the proceeds of a planned post-election flotation.
The online retailer has yet to finalise the location but has whittled the options down to five possible sites, three in the West Midlands and two in the south.
Tim Steiner, one of the grocer's co-founders and its chief executive, told business secretary Lord Mandelson last week that its new warehouse would create more than 2,000 jobs and enquired whether any grants could be made available towards funding the project.
Finance director Andrew Bracey said the number of jobs would be important "politically". He added: "It is more people than in a car plant." The roles created in the centre – similar to a giant supermarket, where grocery orders are fulfilled and sent out to shoppers – will be mainly lower-skilled positions.
A final decision on where to locate the £100m, 25-acre project will be made next month. "We haven't yet decided which site to go with but we need to start work by the end of the year," said Bracey. "It will take two years to complete and we are looking forward three years at where we have got to be."
A range of non-repayable grants or match-funding, from sources ranging from the government to the regional development agencies or the EU, may be available to encourage Ocado to open its warehouse in a particular location.
The online retailer – which sells Waitrose groceries but has never made a profit since it was founded 10 years ago – is planning to join the stockmarket later this year and has pencilled in a time slot between the general election and the summer to list its shares. It expects to be valued at some £1bn.
Some analysts are scathing about that valuation. Ambrian analyst Philip Dorgan recently said: "Ocado begins with an o, ends with an o and is worth zero." Tesco boss Sir Terry Leahy has referred to the business as a "charity".
Last month, a trio of high-profile companies were forced to abandon flotation plans as a result of investors' refusal to put up cash. Among those forced to back away was fashion retailer New Look, which wanted to float to repay some of its mountainous debts.
Ocado, however, which currently has borrowings of some £100m, insists that initial soundings among potential investors have been encouraging. Last week the business reported a reduced operating loss of £14.4m on sales up 25% at £402m. Bracey would not predict when Ocado may move into profit but said it was a matter of "simple maths" provided sales continued to grow at the current rate and absorb the high costs of running its warehouse in Hatfield.
This hi-tech centre, which currently despatches more than 70,000 orders to customers every week – mainly to shoppers in the south-east but as far away as Yorkshire, Manchester and the south coast – is not short of capacity. Ocado says Hatfield could handle sales of more than £1bn, compared to last year's £400m.
Ocado has raised more than £350m from investors since it was launched 10 years ago by a trio of former Goldman Sachs bankers: Tim Steiner, Jason Gissing and Jonathan Faiman. Backers now include Tetra Pak billionaire Jorn Rausing and the Procter & Gamble consumer goods empire. Last year, an investment fund founded by former US vice-president and environmental campaigner Al Gore put £7m into the company as part of a £50m fundraising. Department store chain John Lewis, an original backer, still has a 30% stake, which it has passed to its pension fund.
If it achieves a £1bn float Ocado would generate immediate paper profits of more than £150m for its founders.