Comment: Ocado Is Never Short Of Optimism Despite Losses

Ocado, like all the best online businesses, has always had a knack for shining its shoes before it appears in pubic.

It revealed this morning, as had been widely expected, that it made a loss in its last financial year despite sealing a landmark deal with Morrisons. The company said it made a £12.5 million loss in the year to December 1 compared to £0.6 million the year before.

But, like Amazon, Ocado is ever the tech start-up on the verge of making a fortune. Ocado's chief executive Tim Steiner dismissed the widening loss and described his business as 'unstoppable'. To the untrained eye - and to ours as lifelong sceptics, until more recently - that might seem like hyperbole.

First, let's get the mundane stuff out of the way - the business of delivering groceries on cold winter evenings in refrigerated vans.

The company blamed the loss on investment to increase capacity as well as the rapid development of the joint venture it has agreed with supermarket Morrisons as part of the £216 million deal signed last May.

Ocado is growing nicely if still lagging Tesco in size - the largest in the market with almost 50 per cent share -  as well as Sainsbury's and Asda, both with around £1 billion sales. The online-only firm, which still mainly delivers Waitrose products in its own vans, said sales in the year grew 17.2 per cent to £843 million.

Not bad and, from what we have heard, that growth is at least as fast, if not faster, than all its larger rivals.

It increased its operational efficiencies at its warehouses during the year, improved on its already industry-beating ability to deliver to homes on time (95.2 per cent versus 92.7 per cent a year before) and with the right products (99 per cent versus 98 per cent), and is expanding both food and non-food ranges.

It's also planning a third 'Northern' CFC - its giant automated delivery centres that pack all the shopping before feeding out to smaller warehouses where goods are distributed to homes. We'll probably see that either near Leeds or Manchester - both close to Morrisons' Bradford home to aid the development of Morrisons.com.

But some of Ocado's underlying problems have not gone away, however, despite the massive hike in the share price over the past year. It still doesn't make any money and there is a problem in that its main supplier Waitrose is also becoming a major competitor via Waitrose.com which delivers directly from Waitrose stores.

But all this is increasingly the background music to the main show in town. All eyes are now on its partnership with Morrisons and investors are wondering at what point Ocado can hail it a success and move on to replicate this overseas - probably in France and the US where food delivery seems to be most in demand.

Some in the City remain sceptical over whether the trick can be repeated - or whether the Morrisons deal was just a case of stars aligning and one stumbling business propping up another. 

Morrisons.com launched a month ago. The site seems a little cumbersome at the moment and we have a few issues around the potential competitive issues involved between two firms in partnership but which are now rivals - but we're sure Morrisons and Ocado will have dealt with this to their own satisfaction.

Reports over the weekend once again suggested that overseas grocers are queueing up to be first to sign deals with Ocado. It is difficult to see that happening within the first year of the Morrisons launch with so much management time on that and on planning the third CFC.

But with Ocado right were the action is - the rapidly growing online food delivery market, the widening of its selection to include non-food and, potentially, the internationalisation of the business - it's easy to see why people are getting excited again whereas two years ago they were beginning to lose faith.

Every scrap of detail about the firm's plans seems to get the entire stock market in a lather. So we can perhaps forgive Steiner at a time when we may have to wait a least a few months, if not until the second half of this year, for some real new 'news', when he says:

'Last year the food retail market in the UK was driven by consumers’ increasing preference for shopping online. Today the momentum seems unstoppable and, as the market evolves, we are leading the way in delivering market-leading service, innovation, and technology to the benefit of our customers.'

Ocado will be hoping its supportive investors keep thinking that too.