Ocado shares are tumbling on Monday as investors continue to react to last week’s launch of Amazon Fresh, a service some analysts have warned could cause huge issues for online-only grocer Ocado.
Around 9:15 a.m. BST (4:15 a.m. ET) shares in the FTSE 250 listed retailer are off by 3.77% to around £2.35 each, as concerns about Amazon Fresh continue. Ocado shares have been on a strong downward trajectory in the last couple of months, and have fallen by a third since the start of April.
On the day that Amazon Fresh launched last week, shares actually rose marginally, as analysts had largely priced in the launch. However, it now looks as though investors are once again seeing just how big a disruption Amazon’s entry into the fresh food market could be, and are selling accordingly.
Here’s how the stock looks so far this morning:
In a note circulated to clients on the day of the launch, US-based research firm Bernstein noted that given the upmarket standard of the food on offer with AmazonFresh, it is the likes of Ocado, as well as Sainsbury’s, that will be worst hit by Amazon’s move into groceries. Here’s an extract from Bernstein’s report:
The entry of Amazon Fresh into the UK doesn’t come out of the blue but it will further worry investors about the fundamentals and prospects of the UK food retail market. While we have written in great detail about the limits those offerings (amazon has tried for 17 years to develop Amazon Fresh in its home market of Seattle, with very little to show for it), that won’t be the focus on investors in the short term. Given the London focus and upmarket bias of the offer, we would expect Sainsbury’s to be most impacted from an investor sentiment point of view. However Tesco, and Ocado (outside our coverage) have the largest London based online food retail and therefore will be exposed as well.
Several other retail analysts also noted just how disruptive Amazon’s entry to the market could be, with Bryan Roberts, the Insights Director at retail marketing firm TCC Global, telling the BBC:“While there is no cast-iron guarantee of success… I’m tempted to believe that we’ll look back on today as something of a disruptive game-changer up there with the entry of Aldi and Lidl.”
“Convenience, ultra-competitive pricing and customer service will find favour with urban shoppers and will heap immediate pressure on retailers that do sizeable business in the capital. The model is scalable and the popularity of the Amazon Prime ecosystem around the UK will mean that it will find a receptive audience,” Roberts added.
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