Ocado's Business Model

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Ocado, as the world’s largest dedicated online grocery retailer and has been voted as the best online supermarket in the UK since its foundation in early 2000 by Tim Steiner, Jason Gissing and Jonathan Fairman. (Which?, 2014) With rapid expansion of the business, it develops and operates a unique business model which only focuses on customers’ online shopping and emphasises the partnership with Waitrose. There are a range of products offered in Ocado, not only for its own brand groceries from the Waitrose supermarket chain but also there has a selection of name brand groceries and other items, such as flowers, toys and magazines, a range of Carrefour's products are sold via Ocado website as well. Ocado is aiming at improving the customers’…show more content…
Although the GPM is low to a mark-up of 100 per cent, there has been a rise in the GPM of 0.7 per cent (that is, 30.5 per cent to 31.2 per cent), which means the gross profit is higher relative to sales revenue, also perhaps reflects very good performance by Ocado in 2013. After paying for the groceries sold, for each £1 of sales revenue, 31.2p is left to cover operating expenses. This could mean that sales prices are a slight increase and/or that the purchase prices of groceries have decreased. The business has focused on revenue (up 17 per cent) rather than GPM by lowering prices ,and it is accompanied by 30 per cent increase in overhead expenses which results in a lower OPM ,given the weak performance compared with 2012(that is,0.4 per cent to -0.3 per cent). In 2013 for every £1 of sales revenue an average of -0.3p was left as operating profit, after paying the cost of the groceries sold and other expenses of operating the business. Taxation increase the PostTPM from -3.5 per cent to -1.6 per cent during the 2013 financial period, meaning that the profit after tax on a £100 piece of product was £-1.6.The PreTPM and the PostTPM are very unhealthy at a loss over the two years , however, it has made a great progress of 1.9 per cent , which along with the significant decreasing of the ROCE for the reason of operating profit reducing as well as…show more content…
The CR indicates that there has been a small decline in the liquidity of Ocado compared with 2012 .The CR at 1.130:1 was relatively weak and it meant there was £1.13 of potential resources to pay the current liabilities for every £1.00 of current liabilities in 2013. Declines in liquidity are generally regarded as being negative indicators of corporate performance, and the current assets only cover current liabilities nearly equal. Although there is a decline, it is not necessarily a matter of concern, as supermarket, it holds only fast-moving inventories of finished goods and all of its sales will be made for cash. When the less liquid inventory was excluded this reduced to £0.979 of cash for every £1.00 of current financial obligations in 2013, which regarded as equivalent; it also had a better performance than previous year at £1.026.We can see that the “liquid” current assets do not quite cover the current liabilities, and it may well be a cause for concern. If short-term investors see signs of weak liquidity, they may become anxious within pressure to payment which could cause problems for Ocado. There has been a light increase in Ocado of IDs (that is, 13-14 days to 16-17 days), probably shows it has a problem to control of its stock levels that the users should ask why this change has taken place. The TRDs
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