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Ocado chief announces price war

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Tim Steiner, CEO of UK-based online grocer Ocado, has revealed plans for a price war as the embattled e-tailer seeks to strengthen its offering, it has been announced.

In an interview with the Daily Telegraph, Steiner hit back at claims that Ocado is likely to breach banking covenants as a result of investment in a distribution centre in the Midlands, saying: “We don’t think we are under pressure.

“Our board review them covenant provisions monthly and we are confident about them. Every week the cash generated by the firm is more than our interest repayment and out replacement capex capital expenditure.

“Our business is on an improving trend once we get through the major capex project that we are doing completing the second distribution centre.”

Steiner pointed to the recent launch of Ocado’s ‘Low Price Promise’, a pledge to beat prices of all comparable Tesco shopping baskets as an extension of its existing ‘Tesco Price Match’ scheme which will initially be trialled in the North West.

Using an online monitoring tool to compare groceries, Ocado will add together a cumulative total to compare items with those featuring on tesco.com and provide a money-off voucher to fund the difference, “plus a little bit more.”

Speaking at the time of this launch nearly a fortnight ago, Ocado Co-Founder Jason Gissing said: “We have matched Tesco’s prices on branded goods for many years.

“Now with our Low Price Promise we’re going one step further by giving customers a money off voucher if we don’t beat Tesco on comparable branded and own label goods.

“As the name says, this is a promise to our customers. We won’t just match Tesco prices. We’ll beat them.”

It is hoped that the move will increase Ocado’s grocery market share, as last week figures from consumer research group Kantar Worldpanel revealed that Asda had seen its share rise 6.2 per cent in the 12 weeks to August 5th 2012 while Sainsbury’s saw a 4.6 per cent boost.

Commenting on Ocado’s market share, Steiner noted: “There are some very strange things that go on in our share price and I’m told by our brokers that the borrowing of our shares is now up at 138m shares.

“So there is an enormous short interest which is just extraordinary in size.There is huge speculation that the share price is going down and I don’t know why they believe that. Obviously I don’t believe that as otherwise I wouldn’t be doing what I am doing.”

Steiner added that the online grocer’s latest initiative will place it in a position of strength against competitors, commenting: “The Manchester initiative takes us to the point of being marginally lower.

“As we continue to scale and get the efficiencies from our new facility a distribution centre opening next year in the Midlands we will look at how we want to make our next price investment. We hope to roll it out in the next few months.

“Over the next two to three years we would expect the opportunity to invest more money in the price proposition to take it below the price of the supermarkets.”

Published on Monday 20 August by Editorial Assistant

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