Analysis: Ocado price war threat

The retailer has frequently emphasised product quality and its excellent standards of service and delivery - but has struggled to convince consumers that it offers keen prices too.

So it is sensible to make price competitiveness a bigger selling point, but the truth is Ocado is simply not in any position to launch what might be genuinely termed a ‘price war’ - and in fact Steiner never actually used those words. The fact that most of the food Ocado sells is Waitrose-branded means there cannot be direct comparisons with many of the branded lines stocked by the big four, and equally there cannot be with its rivals’ own-brand lines.

There are other factors too. As Planet Retail senior analyst Malcolm Pinkerton says: “Ocado is in a bit of a Catch 22. They need to acquire new customers, be competitive on price and change perceptions that they are a premium retailer. However, margins are already razor thin.”

Steiner has said he expects to be able to “invest in the price proposition to take it below the price of the supermarkets” after creating greater economies of scale from the new distribution centre that opens next year. But will that be enough for the online grocer to take on its much larger competitors?

Pinkerton believes it is vital for Ocado to get the sort of regular ‘footfall’ that its competitors enjoy and a customer base that habitually shop with the online grocer.

He observes: “Ocado needs consumers to shop with them not on an occasional basis, but on a weekly one. It is constantly buying customers by doing discounts, like £15 off the first shop, to get new customers and lure back lapsed ones.”

Such initatives seem to show that Ocado still has work to do on price perception, and there is little margin for error. A price war however looks highly unlikely.