Comment: the Ocado Debacle

Falling out with your one and only business partner, as Ocado seems to have done, looks like a suicide mission.

Worse still, its discussions with Morrisons are on the verge of descending into fiasco.

Last week it insisted that any deal with Morrisons would not affect its long standing partner Waitrose. Then yesterday Waitrose boss Mark Price spoke out threatening to block any deal.

In the meantime, negotiations with Bradford-based Morrisons have dragged on and only a few days ago Morrisons finance director Trevor Stain said: 'We are not dependent on Ocado to go online. We may or may not work with them.'

Amid all this Ocado's share price has rocketed since February not far off doubling the price to over £1.3 billion. Last year it made a pre-tax loss of £600,000. 

So, what is going on? Waitrose managing director Mark Price said yesterday: 'I would never knowingly sign a contract with Ocado that agreed to them working with another retail competitor. We have moved to defcon one [to find more of our own warehouses] because we don’t know where this is going to end up and we are now working on adding considerable extra capacity to Waitrose.com,' he told the Sunday Telegraph.

It sounds a little like Waitrose is worried it might end up getting edged out for a bigger and more lucrative partner.

Price also revealed that former Morrisons boss Marc Bolland, now chief executive at Marks & Spencer, had approached him four years ago over a possible partnership with Ocado and he had told him the same thing. 

We have also heard that Waitrose has its eye on two sites as possible distribution centres as it tries to rebalance in anticipation of nay further falling out with Ocado. 

We have been told that Waitrose.com currently makes about £300 million sales a year on an annualised basis. Its Acton distribution centre accounts for about £50 million. If we assume its business with Ocado is more than twice its own sales it has a long way to go before being self-sufficient. 

Meanwhile, the Telegraph says Price will ask his lawyers to examine any deal between Ocado and Morrisons to ensure there is no breach of contract. 

Ocado seems to be caught between a rock and a hard place. Its chief executive Tim Steiner, which has the Waitrose name on its vans, still insists there would be no conflict of interests. 

So what is Ocado playing at?

This is a company that, to outsiders at least, has always deftly walked the line between raising new money from loyal investors and running a business whose future has always been more golden than its present. 

It has done a good job of convincing investors that its worth more than its balance sheet would suggest. It talks about the value of its intellectual property and taking the model - a highly automated warehouse that undoubtedly makes filling bags more efficient (if far more expensive) than getting staff to do it in supermarkets or 'dark' stores. It's also a company not known for its humility and it could be argued that has been a big factor in bringing it this far since the dark days of the post-dot.com boom. 

But it seems to be playing a game of blink with Waitrose - with far more risk on its side of the table than that of the John Lewis Partnership-owned Waitrose. What is more, upsetting the fine balance it has achieved between breaking even, finding new investment and paying the bills could be disastrous.