finance

Ocado may lose out despite its lockdown-aided sales rise


Ocado is a company that delivers groceries to people’s homes. Off and on for the last year the public have been subject to a form of house arrest. So you don’t need to have studied Adam Smith or John Maynard Keynes to work out why the business is doing well.

Covid-19 has taken a trend that has been evident for the past decade or so and accelerated it. The backdrop to Ocado’s 35% sales increase is the massive increase in market penetration of online retailers during the Covid pandemic. The British Retail Consortium has said online shopping accounted for 63% of non-food sales in January, more than double the 31% a year earlier.

Ocado is, of course, an online supermarket but even so a 35% jump in revenues is not to be sniffed at. It would have been still higher had the company not run into capacity constraints, a problem now being addressed.

What may surprise some Ocado customers is that even in the most benign conditions imaginable the company is still making a loss. That, though, has more to do with investment in the part of the business that involves selling the company’s tech abroad. Investors in Ocado have been a bit like those in Amazon: they have had to learn to be patient and wait for the profits to roll in.

There is another sense, too, in which Ocado is like Amazon: neither retailer is at all keen on the idea of a digital sales tax. Tim Steiner, Ocado’s chief executive, said the company’s growth was due to consumer choice and it was not appropriate to penalise a business simply because it operated from different premises or because they were more efficient.

In the short term, Steiner has nothing to fear. Rishi Sunak is not about to clobber Ocado and other digital retailers with a pandemic windfall tax in his March budget. Longer term, though, it is likely to be a different story. The Treasury cannot simply write off Britain’s high streets, putting their demise down to creative destruction in action. Pressure to help bricks-and-mortar retailers is sure to intensify. And, whether through a digital sales tax, higher business rates, or some other method, companies such as Ocado will rightly end up paying more.

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Andrew Bailey has a memory problem

Dame Elizabeth Gloster is a former high court judge who, like all members of the judiciary, chooses her words carefully. So when she says she disagrees with the testimony the governor of the Bank of England, Andrew Bailey, gave this week to a Treasury committee hearing into the collapse of London Capital & Finance, alarm bells started to clang at the Bank.

The issue is not whether the Financial Conduct Authority (FCA) – which Bailey ran at the time – made a total mess of LC&F because there is no dispute that it did. Rather, it is whether Bailey sought to have his name taken out of Gloster’s report on the scandal. Gloster said he did; Bailey told MPs he didn’t and there had been a fundamental misunderstanding about what he was trying to do.

Gloster has now written to the committee saying she “disagreed” with Bailey that he was merely asking for a distinction to be drawn between personal culpability and responsibility. To rub it in, she said there had been no fundamental misunderstanding. Gloster is not accusing Bailey of lying, but she is saying that his testimony to the committee was – in her view – not entirely accurate.

The governor, who would dearly like to get on with doing his day job, is sticking to what he told MPs. The danger, though, is that he will be seen as the man who should have done more to stop small investors getting fleeced and then tried to avoid being personally embarrassed over the FCA’s failings. The Treasury committee will have to decide what and who it believes. Its report, not due out until May, has the potential to cause Bailey serious grief.



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