I’ve been saying for some time that changes seen during lockdown may fundamentally shift the way many individuals and companies work. I suspect one prime candidate for this is online grocery shopping. Already a growing trend, coronavirus and social distancing have arguably pushed the industry to a new level. Frontrunner Ocado (LSE: LON:OCDO) certainly seems to think so.
More money please Earlier this month, the online grocer announced its intention to raise more than £1bn in fresh equity and debt. Ocado said the money will be used to make the most of the surge of interest brought about by coronavirus. The pandemic, it argues, has been a “catalyst” for a permanent move to online grocery shopping.
Ocado said the money will be giving it “the financial flexibility to capitalise on opportunities arising from the significant acceleration in online adoption and grow faster over the medium term”.
This position as a major player in online groceries has not gone unnoticed. Since the start of the year, Ocado shares have outperformed rivals, and currently stand about 60% higher than early January.
Interestingly, Ocado may be set to make most of its money not from increased grocery sales at its own company. Instead, increased online grocery sales across the globe may help.
In recent years, much of Ocado’s business has shifted towards its intellectual property. Specifically, automated warehouse and delivery systems. You may still be buying your online groceries from Sainsbury’s or Tesco (LON:TSCO), but very soon, your favourite grocer could be using Ocado systems to help you do it.
Will things change? The one major concern I have is there’s always a chance that things won’t actually change that much. However, I find this pretty unlikely. As I said, there was already a growing trend towards online shopping. It seems nearly impossible that at least some people who began online shopping won’t stick with it.
But I’m old enough to know that it’s too tough to call. I’ve seen times when we all thought things would shift fundamentally, only to look back and laugh a year or two later. People are creatures of habit, and though some people will undoubtedly prefer shopping online, some will go back to ‘normal’ as soon as they can.
So do I think Ocado is a buy? Its diversification away from simply selling groceries, to the technology that allows companies to do it, could be key to making the answer ‘yes’.
It seems likely that not just individuals may change their behaviour due to lockdown, but also companies. The automated and more efficient processes that may have been implemented (or at least observed) during the pandemic may have the supermarket giants looking at their systems.
Ocado is seeing increased demand for its groceries at the same time as other grocers are trying to lease its automated systems. That sounds good to me.
The post Will Ocado shares benefit from a shift in grocery shopping? appeared first on The Motley Fool UK.
Karl has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020
First published on The Motley Fool
