LDN - Business

Fire at Ocado's flagship robotic complex to dent sales growth

[February 06, 2019] By James Davey

LONDON (Reuters) - A huge fire at Ocado's <OCDO.L> flagship robotic distribution center will hit sales growth, the British online supermarket pioneer warned on Wednesday, sending its shares sharply lower.

Around 20 fire engines and 200 firefighters were called to the blaze at the highly automated site in Andover, southern England, which raged for over 24 hours from the early hours of Tuesday. The cause of the fire has yet to be established.

"Whilst we are informed by the Fire Brigade that it is now under control, during the night part of the roof collapsed and there has been substantial damage to the majority of the building and its contents," Ocado said.

The Andover site was providing about 10 percent of Ocado's UK capacity and used the robotic technology that the firm is selling to clients around the world.

"As a result of this incident there will be a constraint on our ability to meet our growing customer demand and there will be a reduction in sales growth until we can increase capacity elsewhere," it said.

Ocado's retail sales rose 12 percent to 1.48 billion pounds ($1.92 billion) in its financial year to Dec. 2, 2018.

The firm has comprehensive insurance cover for the Andover complex - or customer fulfillment center (CFC) as it calls it - as well as the stock and equipment on site, and for business interruption losses.

Shares in Ocado were down 7.8 percent at 1023 GMT.

Though Ocado has a 1 percent share of Britain's grocery market, its 7.2 billion pound stock market valuation has been driven by the technology side of its business - providing international retailers with the infrastructure and software to develop their own online grocery businesses to compete with tech giants such as Amazon <AMZN.O>.

"For those investors who mainly value Ocado as a technology business, this 10 percent dent (in retail capacity) in the near term, should not make a huge difference," said Bernstein analyst Bruno Monteyne.

"What is totally unclear to us at this stage is whether the cause of the fire (unknown right now) has any implications for the technology platform itself."

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Firefighters work at the scene of the Ocado's flagship robotic distribution centre in flames in Andover, Britain Feburary 5, 2019 in this still picture obtained from a social media video on February 5, 2019. Ringwood Fire Station/via REUTERS

INSTRUMENTAL

The Andover plant, which was processing 30,000 orders a week is Ocado's third automated warehouse and has been instrumental in the firm winning major deals to sell its technology to U.S. group Kroger Co <KR.N>, France's Casino <CASP.PA>, Canada's Sobeys <EMPa.TO> and Sweden's ICA <ICAA.ST>.

While Ocado's first two centers at Hatfield, north of London, and Dordon, central England, require humans to load thousands of crates traveling on miles of conveyor belts, Andover has hundreds of robots speeding along at four meters per second on giant grids.

A fourth CFC at Erith, near London, opened last summer. It is currently processing around 35,000 orders a week. Four times bigger than Andover, at maturity it will be the world's biggest automated distribution center, processing 220,000 orders a week.

An Ocado spokesman said in theory Andover's business could be served by the other three CFCs and network of spokes (satellite distribution depots) though it would take some time to formulate an economic plan.

Ocado said on Tuesday the fire had broken out on one of the grids of robots at Andover, forcing it to suspend operations.

The group was founded by three Goldman Sachs <GS.N> bankers 18 years ago. After struggling for years to post a profit it has flourished in the last year and nearly doubled its stock market value after striking the technology deals.

The company on Tuesday reported full-year earnings and cautioned that investment in partnership deals would hit short-term profits.

(Reporting by James Davey; Editing by Kate Holton and Mark Potter)

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