Amazon to buy Ocado?

Rumours are rife in the City of London that the online grocery store Ocado could be a target for online giant Amazon. There are signs that this may be the case, and Ocado is ripe for the picking should Amazon make the move.

Ocado was launched in the early 2000’s with the intention of being the biggest online grocery store in the UK. It never made it, and has been struggling to achieve profitability as the other major players in the UK online grocery market have set up their own online channels.

Set up under the wing of Waitrose, the company now uses its own fleet and distribution network to reach much of the UK, but even though undergoing massive expansion and taking on thousands of new customers in an aggressive marketing drive, it isn’t an attractive buy for investors as its margins are far from impressive. Its share price sits at around 242p, which is very attractive for a takeover bid.

Amazon has just launched Amazon Pantry in some of the UK, but this has nowhere near the range of goods offered by the online grocery minnow, and Ocado also has a much more extensive network of same day operations than Amazon – in one swallow, Amazon could gobble up a fully fledged supermarket that has a much better same day temperature controlled delivery network than its own.

The times are ripe therefore, for Amazon to consider taking over Ocado. Goldman Sachs is reputed to have said that this would be a good move as early as 2012, but with Sainsbury likely to buy up Argos the battle lines could quickly be drawn up for the bulk of the e-commerce market between two very successful big brands.

Neither Ocado or Amazon have commented for now, but if the rumours are true, then things could be very interesting in the coming months as the battle lines are drawn between Amazon and Sainsburys…