A Pure Play Growth Opportunity
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Sanford C. Bernstein SDC 2010 A pure play growth opportunity Andrew Bracey Chief Financial Officer 22 September 2010 Forward-Looking Statements Disclaimer This presentation may include oral and written “forward-looking statements” with respect to certain of Ocado’s plans and its current goals and expectations relating to its future financial condition, performance and results. These forward-looking statements sometimes use words such as anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’ or other words of similar meaning. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which may be beyond Ocado’s control, including, among other things, UK domestic and global economic and business conditions, market- related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, the possible effects of inflation or deflation, the timing impact and other uncertainties relating to acquisitions by Ocado Group and relating to other future acquisitions or combinations within relevant industries, the impact of tax and other legislation and regulations in the jurisdictions in which Ocado and its affiliates operate, as well as the other risks and uncertainties set forth in our IPO prospectus released on 6 July 2010. As a result, Ocado’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Ocado’s forward-looking statements, and persons receiving this presentation should not place undue reliance on forward-looking statements Ocado undertakes no obligation to update the forward-looking statements made in this presentation or any other forward-looking statements we may make. Forward-looking statements made in this presentation are current only as of the date on which such statements are made. 2 Ocado overview Highlights Gross Sales • Ocado is an internet grocery operation with a (£m) (£m) market leading customer offering – Largest dedicated online supermarket in the world by sales – Fastest growing major grocery retailer in the UK EBITDA (£m) (9.5) 2.2 9.2 • Ocado offers delivery of over 20,000 grocery products to customers from a single, highly Award winning customer proposition automated, 295,000 sq ft warehouse with no shops • Over 240,000 active customers – Scalable business model • Over 100,000 orders per week – Picks c.1 million items in CFC every day • 99.4% of items delivered exactly as ordered – Margin potential exceeds store-based • 97.6% of deliveries on time or early competitors • 95% product availability for next day delivery – Allows Ocado to guarantee freshness and quality of its groceries – Product mix: c.55% of products sold ambient, 40% chilled and 5% frozen Grocer Gold Awards – The Favourite Online Online Retailer of the Year Supermarket in Customer Survey 2005, 2007, 2009 & 2010 2009 & 2010 nominated for Green Retailer of the Year 2009 Online Retailer of the Year at 2010 Consumer Awards 3 Agenda Significant market opportunity Market leading proposition Capacity to serve the market 4 Grocery is the largest UK retail market, with only a fraction online UK Retail Sales by Sector (2009E)1, £bn UK Retail Online Penetration (2009E)1 Grocery 146 Music & Video 48% Clothing & Footwear 41 Electricals 24% Electricals 23 Homewares 9% Health & Beauty 17 Clothing & Footwear 7% DIY & Gardening 14 Book, news & stationery 6% Furniture & Furniture & 13 4% Floorcoverings Floorcoverings Homewares 11 DIY & Gardening 4% Book, news & stationery 10 Health & Beauty 3% Music & Video 5 Grocery 2% 1 Third party estimates 5 Online grocery has shown substantial growth – expected to continue UK Online Grocery Sales (2007-14F), £bn1 The Potential Opportunity • Estimates of the online grocery market’s current size range from £2.8bn to £5.3bn • IGD predicts the market is likely to grow at a CAGR of over 14% in the next 5 years • Estimates of longer term online penetration vary; with up to c.40% predicted Implied Total Online Grocery Sales (2025) 1 Third party estimates 6 The online opportunity – driven by the improving online proposition Late Online Drivers Total UK Grocery Market • Price • Range • Availability • Freshness • Quality AdopterProfile Increasing adoption over time over adoption Increasing • Ease of use • Time • Reliability Early % of shoppers for whom online shopping is more appropriate • Information As the online proposition improves over time more of the market 0% becomes addressable 100% 7 Customer demographics broaden as the market matures Socio-Economic Group Evolution (2009 Customer Survey1), by Household Income £kpa 12% 20% 21% 27% 24% Over £100k 35% 25% 28% 33% 28% £60-100K 33% 26% 27% £40-60K 28% 25% 27% 18% 21% 36% Less than £40k 23% 21% 18% 22% 21% 2004 2005 2006 2007 2008 2009 1 Based on a September 2009 survey of 2,232 Ocado customers 8 As the channel develops consumers change their behaviour, spending more on each shop Average Spend Per Basket (£), by Number of Shops1 130 120 110 100 Average Spend Per Basket (£) Spend Average 90 80 0 10 20 Number of Shops 30 40 50 1 Chart shows average spend per basket (excluding delivery charge) across all Ocado orders, grouped by how many orders each customer had made previously 9 Mobile device checkouts up over 40% in 4 months Checkouts on Mobile Devices, by Month1 150 125 1 100 Indexed Scale Indexed 75 50 April 2010 May 2010 June 2010 July 2010 August 2010 1 Figures indexed to mobile checkouts as a percentage of total checkouts in April 2010 10 Penetration limits have not yet been reached, with Ocado regularly serving over 5% of households in certain areas Unique Households Shopping Weekly With Ocado 10.0% Postcode Av. Weekly % Used Order Sector Penetration Ocado in Growth (P1-6 2010)1 FY092 (FY08- FY09)3 7.5% Area 1 8.6% 26.8% 23% Area 2 7.8% 26.8% 19% 5.0% Area 3 7.1% 23.0% 30% Area 4 7.1% 22.8% 19% 2.5% Area 5 6.4% 22.3% 15% Area 6 5.7% 17.6% 20% Area 7 5.7% 17.8% 22% 0.0% FY03 FY04 FY05 FY06 FY07 FY08 FY09 YTD10 Area 8 5.4% 19.8% 28% 1 Weekly penetration by postcode sector, averaged over P1-6 2010 2 % of customers in a given postcode sector that shopped with Ocado in 2009 3 Growth in average number of customer orders per week from 2008 to 2009 11 Agenda Significant market opportunity Market leading proposition Capacity to serve the market 12 Ocado has a unique approach to address the online opportunity Ocado Store Picked Model (both in-store and online) Waitrose Direct Regional Suppliers Suppliers Distribution Centre c.85% c.15% Regional Regional Regional Distribution Distribution Distribution Ocado Warehouse Centre Centre Centre (Hatfield) Store Store Store Store Customers Customers • Improved availability • Inferior availability Customer • Improves freshness • Lost time and freshness of product Proposition • Wide range • Range of products available limited • Lower wastage (c.0.6%) • Duplicate unpacking / sorting / shelf stacking at incremental cost Cost • No property costs of store network • Store wages comprise significant portion of costs Efficiency • More efficient use of capital • Significant cost to build new store 13 Unique approach – enabled by proprietary IP IP Overview • Model difficult to replicate; requires technical expertise, considerable time and significant investment • Business controlled using proprietary software written by Ocado • Warehouse highly customised after many years of iterations with purpose-built machinery and bespoke code Fully Integrated Bespoke IT System Website Interface CFC Spoke Vans and Routing Last Mile Delivery Custom checkouts Smart Warehouse Double Decker trucks Van availability algorithms CSTM mobile device interface Control System 14 Unique approach – market leading proposition Customer Proposition Ranking¹ How Ocado Delivers • Over 20,000 SKUs Wide Range N/A • More than most supermarket stores Product Offering Quality • Structural advantages allow Ocado to guarantee freshness & Freshness #1 and use-by dates Joint w ith Tesco • Tesco Price Match Price Value for Money and Sainsbury’s • Ocado own brand proposition Accuracy & • 99.4% fulfilment accuracy given structural advantages2 Availability #1 Customer Delivery Service • 97.6% of orders delivered on time or early3 Service #1 User-Friendly • Unique functionality Interface #1 1 Sources: Which? Jun-2009 2 Fulfilment accuracy and product availability shown are for the FYE 2009 3 % of orders delivered on time or early during the week ending 16 May 2010, Ocado’s first 100k order week 15 Ocado innovates – improving the proposition Range1 12k 16k 20k 23k Product Offering Price Customer Service 1 12k SKUs as at year end November 2007. 16k SKUs as at year end November 2008. 20k SKUs as at year end November 2009. Target of 23k SKUs by the end of 2010 16 Continues with the launch of “Switch and Save”… “Switch and Save” Beta Launched in August 2010 17 17 … and a new website 5th Version of Webshop To Be Launched by End of 2010 18 Improving proposition driving acceleration in sales growth and associated EBITDA Gross Sales, £m 427 341 291 246 189 FY07 FY08 FY09 P1-6 2009 P1-6 2010 EBITDA, £m 9.2 8.0 2.2 2.8 FY07 FY08 FY09 P1-6 2009 P1-6 2010 -9.5 Incremental EBITDA margin of 8.1% in 2009 and 9.1% in P1-6 2010 19 Agenda Significant market opportunity Market leading proposition Capacity to serve the market 20 Ocado’s growth continues Average Weekly Orders Per 4 Week Period Jan 2002 Sept 2010 21 Ocado is fully funded to increase the sales