Ocado could lose its battle with Amazon this year

Tim steiner ocadoBloomberg / screengrabOcado founder Tim Steiner

Fresh food delivery company Ocado has been having a rotten time recently.

First it was the announcement of a deal between Amazon and UK supermarket chain Morrisons, which gave its shares an absolute battering.

Then there was the fear that Ocado’s founder Tim Steiner may be forced to sell some of his 5% stake in the company thanks to a bitter divorce battle, which made investors even more nervous according to The Times.

And now, to compound Ocado’s woes even further, UBS has released a report which suggests Amazon will grow even more than its already staggering 15% growth last year and that a “new order” in retail was on the horizon:

“Our UBS Evidence Lab UK consumer survey highlights there is no slowdown in the shift to online and Amazon is seeing an increasing proportion of UK consumers, and especially under 35s, visiting and spending within their platform as they expand into more categories,” it said.

It added that “most UK retailers” would lose from this growth and that they’d also have to pass on higher prices to their customers in the 2016/17 financial year.

Being forced to respond with higher prices would be bad news for Ocado because it already relies on customers being willing to spend a little bit more than most delivery companies for its fresh food. As the report notes, customer outlook is “slightly less positive than 6 or 12 months ago. This potentially mirrors the recent slowdown in expectations for GDP growth.”

If Amazon-Morrisons compete on price as well as convenience, Ocado customers may be swayed if they’re planning to budget their food expenses in a relentlessly downbeat economic climate.

Duncan Totton-Brown, Ocado’s finance chief, was recently forced to comment on the new, potentially devastating competition, telling the Evening Standard that he welcomed the shake up in the food delivery market, saying “I’m sure Amazon will bring some new changes and challenges, but we welcome any further competition that grows the market.”

Analysts will be watching Ocado’s share price closely in the next few weeks, which has been fallen in the last two quarters:

Ocado has proven to be a volatile stock. Shares spiked last week when the company announced unexpectedly high growth and the company will be hoping that it can cement itself as the go-to brand for people willing to pay a bit more for fresh food home delivery.

NOW WATCH: James Altucher makes an argument for not paying back your credit card debt

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.