The FTSE 100 group has a proven profitability model, though it is somewhat specific to the advantages it enjoys in UK, such as a premium position and higher than average baskets.
“We believe that challenge from micro fulfilment centre (MFC) based competitors are growing with retailers embracing the more flexible, relatively capital-light models,” analysts at the bank said.
“Signs of greater engagement with global retail partners again and/or a significant improvement in the customer fulfilment centre economics could potentially make us more positive going forward while greater evidence of profitability of the competing systems could potentially make us more negative.”
Ocado recently signed a contract with Alcampo in Spain, with a first CFC in the Madrid region scheduled for 2024 and more likely to be announced in the future.
But the evidence of success of the MFC-based competitors poses challenges for future contract wins: for example, Takeoff Technologies is expanding its presence with rollout of its MFCs in Australia with Woolworths and Albertsons in the US with six more to open in 2021.
Tesco PLC (LSE:TSCO) also said its first MFC has achieved full capacity of around 650 orders per day, while its second is larger MFC is targeting 1,000 orders per day as it looks to add another ten MFCs a year over the next few years.
More woes are coming from platforms such as Deliveroo, Uber Eats and instant grocery providers like Gorillas.
UBS cut its target price to 2,100p from 2,300p and maintained its ‘neutral’ rating.
It also downgraded underlying earnings (EBITDA) expectations to GBP79mln from GBP98mln for this year and to GBP136mln from GBP181mln for the next.
Shares shed 2% to 1,973.17p on Tuesday afternoon.