Why is Ocado Struggling?
Once hailed as a pioneer in online grocery shopping, Ocado revolutionized the industry with its automated warehouses and technology-driven operations. The company saw remarkable success during the COVID-19 pandemic, when online grocery shopping soared. However, as market conditions shifted, Ocado began facing mounting challenges.
From declining demand to rising operational costs, Ocado’s stock has plummeted, and profitability remains elusive. What went wrong? This article explores the key struggles Ocado faces, backed by data and insights from industry experts.
The Boom Years: Ocado’s Initial Success
How Ocado Disrupted the Market
Founded in 2000, Ocado started as an online-only supermarket, differentiating itself with a tech-heavy business model. Key milestones included:
- Waitrose Partnership (2002–2020): Provided premium grocery items.
- M&S Collaboration (2020–present): Replaced Waitrose, giving Ocado access to M&S’s exclusive products.
- International Expansion: Ocado supplied its warehouse automation technology to global retailers like Kroger (USA), Coles (Australia), and Casino (France).
- Pandemic Boost: During 2020-2021, online grocery sales hit record highs, driving Ocado’s revenue and stock price to all-time highs.
At its peak, Ocado shares traded above £28 in 2020. But things have changed drastically since then.
Why is Ocado Struggling? Key Challenges
Declining Online Grocery Demand
- Pandemic Boom Fizzled Out: Online grocery shopping peaked at 14% of total UK grocery sales in 2021 but has since dropped back to 11% in 2024 (Source: The Guardian).
- Customer Preferences Have Shifted: People are returning to physical stores for fresh food, better deals, and instant gratification.
- Competitor Response: Tesco, Sainsbury’s, and Asda have enhanced their online grocery offerings while still benefiting from in-store footfall.
| Year | Online Grocery Market Share (%) |
| 2021 | 14% |
| 2022 | 13% |
| 2023 | 12% |
| 2024 | 11% |
Rising Operational Costs & Financial Pressures
One of Ocado’s biggest selling points is its automated warehouse system (Customer Fulfillment Centres – CFCs). However, these state-of-the-art robotic warehouses require massive investments.
Key Financial Challenges:
- High Energy & Maintenance Costs: Running robotic fulfillment centers is expensive.
- Low Margins in Grocery Retail: Even at peak performance, grocery retail offers thin profit margins.
- Stock Market Decline: Ocado’s share price has dropped from £28 (2020) to below £5 (2024).
| Year | Ocado Share Price (£) |
| 2020 | 28.00 |
| 2021 | 21.50 |
| 2022 | 12.30 |
| 2023 | 6.40 |
| 2024 | 4.90 |
Competitive Pressures from Rivals
Ocado is struggling to compete with both traditional and tech-driven retailers:
- Tesco and Sainsbury’s have improved their online grocery services while retaining strong in-store customer bases.
- Amazon Fresh is gaining traction in the UK market, offering same-day delivery.
- M&S Partnership Challenges: Some analysts argue that M&S products have limited appeal for budget-conscious grocery shoppers.
International Expansion Struggles
Ocado has tried to grow beyond the UK, but its international tech licensing business has faced setbacks:
- Kroger (USA): The automated warehouses in the US have had a slower-than-expected rollout.
- Casino (France) and Coles (Australia): Ocado’s tech-heavy model requires significant investment, making partnerships less attractive.
Short-Selling & Investor Confidence Decline
- Short sellers (hedge funds betting against Ocado) have increased their positions, indicating low investor confidence.
- Ocado was removed from the FTSE 100 index in 2024, signaling further struggles.
How Can Ocado Overcome These Challenges?
Diversification Beyond Groceries
- Ocado should expand its warehouse automation business beyond groceries.
- Explore new sectors, such as pharmaceutical and general retail fulfillment.
Hybrid Retail Model – Learning from Competitors
- A click-and-collect model could bring back customers who prefer a mix of online and in-store shopping.
- Partnering with physical retailers to create pickup locations.
Improving Profitability & Investor Confidence
- Strategic cost-cutting without compromising technology.
- Optimizing existing CFCs before expanding further.
- Rebuilding investor confidence by demonstrating sustainable revenue growth.
Conclusion & Key Takeaways
Ocado was once a leader in the online grocery revolution, but post-pandemic realities, rising costs, competition, and strategic missteps have created major challenges.
- 📉 Declining online grocery demand
- 💰 Rising operational costs & low profitability
- 🏬 Intensifying competition from traditional & tech-driven retailers
- 🌍 International expansion struggles
- 📉 Investor confidence decline & stock market troubles
While Ocado’s automated fulfillment technology is groundbreaking, it needs to adapt to new consumer trends, rethink its strategy, and regain investor trust.
💬 What do you think? Can Ocado turn things around, or is this the beginning of the end? Let us know in the comments!
