Procter & Gamble has taken a 1% stake in Ocado to gain an insight into online trading. What knowledge does P&G hope to gain? Chloe Smith reports
Eight years ago, Ocado's founders were driving around the HQs of multinational suppliers pitching for business. Some laughed them out the door, but Procter & Gamble, the biggest of them all, was enthused by the concept of an online grocery retailer.
Now P&G has put its money where its mouth is by purchasing a 1% stake in Ocado for £5m. It's a big vote of confidence for Ocado, which has yet to make a profit, but of more significance is P&G's timing.
Six weeks ago, P&G in the US launched a website, theessentials.com, selling Dove toiletries, Pantene hair products and other P&G brands direct to American consumers. P&G is clearly fascinated by the online model. So what insight will the consumer goods giant gain from Ocado? And will it be able to export its knowledge back to the States?
Damon Jones, external relations manager for P&G, says the company wants to find out about consumer behaviour online because "consumers are at the heart of everything we do".
P&G will receive trading updates from Ocado and be able to access information about the age, status and shopping habits of Ocado's customers. "Given that Ocado has a unique online-only business model, it's a fertile ground for testing new ideas," says Jones. "There will be some online learnings and insights, but it will also be about: how do you communicate with consumers? How do you develop relationships with consumers? How do you make sure our brand communication is very clear?"
P&G will not use Ocado to mine information for its own website, insists Jones. It is too early to say whether the company will use the relationship to test new products on Ocado customers he adds. But one can reasonably assume P&G has not struck this deal just to be able to boost its brands by sending out free tester toiletries to middle-class mums in south-east England. Its aims are far wider.
At the same time as P&G bought its stake, the billionaire Rausing family, which made its fortune with the Tetra Pak carton empire, ploughed another £13m into Ocado. Jason Gissing, Ocado's finance director, is convinced that both investors share his belief in the online grocery model and the complex technology Ocado has developed around it.
"There are lots of places that this technology, this intellectual property, can be applied," he says. "In other markets, whether it is in the developed world, whether it is in Asia, America, France, there are lots of places you can do this. We think it's really viable and we think the opportunity will be huge."
Some in the industry are more sceptical about P&G's decision and think the move will only serve to irritate other retailer customers. "It is a highly unusual position for a supplier to get into bed with what your most important customer regards as a charity case," says one industry chief executive, referring to Tesco chief Sir Terry Leahy's numerous swipes at Ocado's business. Others, however, insist that the tie-up is purely an exercise in gathering market insight - P&G won't get access to sensitive business information, nor will Ocado get access to other retailers' terms.
Whatever insights it gleans, the move represents good value for money for P&G, says a source close to Ocado. "P&G probably spends hundreds of millions with TNS in terms of research to get shopping basket data, so I think it is an astute investment," says the source.
"They [P&G] know consumer behaviour is changing around the world, and they know that the internet is going to be more and more important over the next 10 or 20 years. They could spend five or 10 years thinking about what they could do online, but by the time they've worked out what they should do, the consumer behaviour landscape will have changed."
From the evidence so far, P&G looks set to take its 1% investment in Ocado a long way.
Eight years ago, Ocado's founders were driving around the HQs of multinational suppliers pitching for business. Some laughed them out the door, but Procter & Gamble, the biggest of them all, was enthused by the concept of an online grocery retailer.
Now P&G has put its money where its mouth is by purchasing a 1% stake in Ocado for £5m. It's a big vote of confidence for Ocado, which has yet to make a profit, but of more significance is P&G's timing.
Six weeks ago, P&G in the US launched a website, theessentials.com, selling Dove toiletries, Pantene hair products and other P&G brands direct to American consumers. P&G is clearly fascinated by the online model. So what insight will the consumer goods giant gain from Ocado? And will it be able to export its knowledge back to the States?
Damon Jones, external relations manager for P&G, says the company wants to find out about consumer behaviour online because "consumers are at the heart of everything we do".
P&G will receive trading updates from Ocado and be able to access information about the age, status and shopping habits of Ocado's customers. "Given that Ocado has a unique online-only business model, it's a fertile ground for testing new ideas," says Jones. "There will be some online learnings and insights, but it will also be about: how do you communicate with consumers? How do you develop relationships with consumers? How do you make sure our brand communication is very clear?"
P&G will not use Ocado to mine information for its own website, insists Jones. It is too early to say whether the company will use the relationship to test new products on Ocado customers he adds. But one can reasonably assume P&G has not struck this deal just to be able to boost its brands by sending out free tester toiletries to middle-class mums in south-east England. Its aims are far wider.
At the same time as P&G bought its stake, the billionaire Rausing family, which made its fortune with the Tetra Pak carton empire, ploughed another £13m into Ocado. Jason Gissing, Ocado's finance director, is convinced that both investors share his belief in the online grocery model and the complex technology Ocado has developed around it.
"There are lots of places that this technology, this intellectual property, can be applied," he says. "In other markets, whether it is in the developed world, whether it is in Asia, America, France, there are lots of places you can do this. We think it's really viable and we think the opportunity will be huge."
Some in the industry are more sceptical about P&G's decision and think the move will only serve to irritate other retailer customers. "It is a highly unusual position for a supplier to get into bed with what your most important customer regards as a charity case," says one industry chief executive, referring to Tesco chief Sir Terry Leahy's numerous swipes at Ocado's business. Others, however, insist that the tie-up is purely an exercise in gathering market insight - P&G won't get access to sensitive business information, nor will Ocado get access to other retailers' terms.
Whatever insights it gleans, the move represents good value for money for P&G, says a source close to Ocado. "P&G probably spends hundreds of millions with TNS in terms of research to get shopping basket data, so I think it is an astute investment," says the source.
"They [P&G] know consumer behaviour is changing around the world, and they know that the internet is going to be more and more important over the next 10 or 20 years. They could spend five or 10 years thinking about what they could do online, but by the time they've worked out what they should do, the consumer behaviour landscape will have changed."
From the evidence so far, P&G looks set to take its 1% investment in Ocado a long way.
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