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Forward-looking Statements Disclaimer
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This presentation contains oral and written statements that are or may be “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 are usually identified by 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 are based on current expectations and assumptions but relate to future events and circumstances which may be beyond Ocado’s control. There are important factors that could cause Ocado’s actual financial condition, performance and results to differ materially from those expressed or implied by these forward-looking statements, including, among other things, UK domestic and global political, social, 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, variations in commodity prices and other costs, the ability of Ocado to manage supply chain sources and its offering to customers, the effect of any acquisitions by Ocado, combinations within relevant industries and the impact of changes to tax and other legislation in the jurisdictions in which Ocado and its affiliates operate. Further details of certain risks and uncertainties are set out in our Annual Report for 2014, which can be found at www.ocadogroup.com. Ocado expressly disclaims any undertaking or obligation to update the forward-looking statements made in this presentation or any other forward-looking statements we may make except as required by law. Persons receiving this presentation should not place undue reliance on forward-looking statements which are current only as of the date on which such statements are made.
Contents
Ocado at a glance Online grocery: opportunity and challenge Ocado’s unique business model Intellectual property, technology and strategic customers Summary
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Award winning customer proposition Commercialising knowledge
Unique business model Proprietary intellectual property
• No stores, centralised fulfilment • Highly automated • Technology driven
• Write and develop all software • Proprietary, physical fulfilment
asset solution • End to end fully integrated
system for online grocery retail
• Morrisons first external customer • Running morrisons.com, launched
Jan 2014 • Targeting international
opportunities
Ocado at a glance
World’s largest dedicated online grocery supermarket
Online Supermarket of the Year 2015
Voted Best Online Grocer for sixth consecutive year
Best Online Grocer for Vegetarians 2015
Best Online Supermarket 2015
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427 551 643 719
843 972
FY09 FY10 FY11 FY12 FY13 FY14
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A leading UK online grocer and growing…
Ocado continues with strong retail sales growth (£m)… …ahead of competitors
+96% 15.7% 15.4%
9.1%
1.2% 0.6%
-1.3% -1.3% -3.5%
UK Grocery Sales (12 Weeks ending 21st June 2015¹) Year-on-Year % Change
¹Source: Kantar Worldpanel, Ocado (1H 2015 figure), retail gross sales
Contents
Ocado at a glance Online grocery: opportunity and challenge Ocado’s unique business model Intellectual property, technology and strategic customers Summary
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1 Source: IGD, data is year to April 2015
The grocery market is substantial Online fastest growing segment set to almost double by 2020
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Annual retail spend in the UK¹
The UK grocery market represents over half of
annual retail spend in the UK Growth traditionally driven by ‘space race’ model Hyper- and supermarkets reporting slowing
growth or decline
4.1
8.9
17.2
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Online grocery market size by 2020 (sales, bn)
Online forecast to be 9% of grocery retail by
2020
Online and discount to account for 80% of industry growth in next five years
Channel shift away from physical stores supported by advances in technology
Other 49%
Grocery £178bn1
51%
The opportunity – channel shift to online UK Grocery retail industry is undergoing significant change
Retailers started to build larger stores out of town, and attracted customers to these emerging superstores and hypermarkets through the lure of even greater range and lower prices.
The next channel shift is online. Other retail segments migrated to online with significant impact. Customers shopping online for their groceries in increasing numbers. Ocado built its business to be at the forefront and benefit from, this next channel shift in grocery.
Prior to the 1950s, groceries sold in small stores, limited ranges and prices set by suppliers under retail price maintenance (“RPM”).
Introduction of self-service in 1950s, customers picked own products rather than being served “over the counter”. RPM abolished in the 1960s giving rise to price competition, different product categories, emergence of supermarkets in the high streets.
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Channel shift supported by technology – over 50% of
Ocado check-outs by mobile device
The challenge of online in grocery
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Product Shelf Home
Retail mission
The retail mission is to get the product from supplier to the customer’s home
Traditional operating model only completes half of the mission
Online completes the entire mission, but comes at additional cost
Even lower margins
Store cannibalisation
Low margin industry
Additional costs for
online
Grocery is a low margin industry
Utilising existing assets (ie stores) for online adds significant costs to an existing low margin operating model
Contents
Ocado at a glance Online grocery: opportunity and challenge Ocado’s unique business model Intellectual property, technology and strategic customers Summary
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Ocado’s unique model meets the challenge Developing the best platform for online grocery retailing
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Key features of operating model
Pure-play online operator, no physical legacy stores
Aggregation of scale into single facilities, where all stock is held and all customer orders are picked
Automation of many processes
Application of Proprietary Technology
Offers leading customer proposition
Drives operational efficiency
Optimizes capital efficiency
Clear focus on removing cost
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2
3
Driving operational efficiency
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1 Focused on removing costs vs traditional retail model
• No need for DCs/RDCs but larger centralised facilities
• Automated processes of receiving and putting away stock
• No physical check-out
• Significantly lower product waste
• Significantly lower property/ occupation costs e.g energy use
115
150
162 190
2009 2012 2015 Projection
Drops per van/ week
Trunking costs decrease with more CFCs/ spokes in existing geography
First customer closer to spoke as more spokes open
DPV increase as customer density improves, thereby reducing delivery costs
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Our hub and spoke system provides reach, scale and further efficiencies
Our operational efficiency continues to improve due to scale & investment
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111 121 135
145 153
FY11 FY12 FY13 FY14 1H15
CFC Efficiency (UPH) Units per hour of labour
145 152 160 163 162
FY11 FY12 FY13 FY14 1H15
Delivery Efficiency (DPV) Drops per Van
0.7% 0.7%
1.0%
0.8% 0.7%
FY11 FY12 FY13 FY14 1H15
Wastage % of Sales
Once at scale . . . A virtuous cycle turns online into mainstream channel
• Store densities fall
• Volumes decline further
• Less scope to improve customer proposition
• Fixed costs increase as % Sales
• Online growth accelerates decline
Online m
igration
Store based vicious spiral
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Ocado’s virtuous cycle
Lower prices, wider range generates faster
growth
Growth allows further investment into
customer proposition
Growth further erodes buying power
disadvantage
At scale logistics cost benefit outweighs
buying power disadvantage
Cost base erodes
Virtuous Cycle
Optimizing capital efficiency Our existing and future CFCs
CFC Capital/ peak sales capacity
Capital/ sales
Operational
UPH
Achieved Target1
Hatfield Dordon Andover Erith
Na/ £0.8bn £155m / £1bn
£45m / £350m
£135m / £1.2bn
Na
16%
13%
11%
>150
>170 - -
150
180
180+
200+
1 Target UPH figures expected 3-4 years after CFC opening 16
Go live: Andover: end 2015/ start 2016 Erith: 2H 2017
Andover and Erith have first installations of our next generation infrastructure solution:
Better operational efficiency (higher target UPH)
More capex efficient (better capital/sales ratio)
Flexible as to size and shorter build time
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Overall CFC efficiency continues to improve as we add more efficient capacity
95.6% Orders
on time or early
99.3% Item
accuracy
Ocado > 45,000 SKUs Own label sales growth > 25%
Service Range Price
• Highest and improved service levels
• Quick and easy to use
• Wider range
• Expanding own label • Fresher produce
• Non-food expansion
• More promotions
• Better value • Price commitment
• Reduced delivery prices
>70% of customers’ baskets already cheaper at Ocado
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Ocado’s leading customer proposition 3
Retail revenues up 15.1% Active1 customers 471,000 Average basket2 £111.68
1 Customer who shopped at least once in last 12 weeks 2 Refers to Ocado.com orders and includes orders for Fetch and Sizzle All data current as of 1H 2015
LPP voucher costs
remain low
Supported by best in class user interfaces
Launched mobile website for Ocado.com
PayPal login & check out
Launched Apple Watch app
Refreshed app designs
Refreshed Android app
Optimisation
Personalisation
Logged out shopping
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Sales by year of customer acquisition (£m)
45%
27%
19%
10%
<£40k £40k-£60k£60k-£100k £100k+
New customer household income distribution (by year of registration)¹
26%
27% 27%
20%
2010² May 2015
¹May 2015 Survey, cohort analysis ²Based on current customer income as of the May 2015 customer survey 19
Driving positive customer trends Strong customer loyalty and spend over time & broadening customer base
£
Time
Contents
Ocado at a glance Online grocery: opportunity and challenge Ocado’s unique business model Intellectual property, technology and strategic customers Summary
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Ocado Smart Platform Our proprietary total solution for operating online retail businesses
End-to-end proprietary technology solution
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Proprietary physical asset solution
Customer interfaces
Supply & Inventory
WMS
WCS PLC
Routing optimisation
Contact centre
Scalable
Modular
More efficient
Less space
Range friendly
Cheaper
Fast to deploy
Enables partners to operate entire customer shopping process using integrated software systems
Ocado’s 14+ years experience and knowledge base applied to designing our own assets
Customer interfaces Supply chain Warehouse
Vans & Routing Delivery
Mechanical handling equipment
Track record of enabling online businesses Morrisons is Ocado’s first external customer
Launched January 2014 Morrisons announced a 12 month sales
run rate of around £200m in March 2015
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Attractive customer proposition
Scalable, modular approach
Better operational efficiency
Ability to extend range significantly
Reduced capex, timeframes and risk
Compelling economics
OSP offers retailers:
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International opportunities Ocado Smart Platform is uniquely positioned to take advantage
Ocado Smart Platform Fully integrated end-to-end platform
Faster, flexible and more cost-efficient way of operating online grocery
International Partner Local retailing skills
Local attributes
Sustainable, scalable and profitable Online grocery business owned by international partner
Ocado summary
World’s largest dedicated online grocery supermarket
Global grocery market is huge with channel shift to online growing
Technology and innovation drives superior customer proposition and ‘best in class’ operating model
Commercialising IP offers significant value creation from Ocado Smart Platform internationally
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