> The UK already has at least one mass-market grocery delivery company that is profitable (albeit barely - a pre-tax profit of £11.9m on sales of £1,202.9m).
I just checked Pitchbook and in 2014 Ocado has a ~3% EBITDA margin. This is hysterically low for a "technology" company.[0] For reference, Alphabet operates at ~30% EBITDA margin. The problem with food delivery profits is that they are hysterically thin and underpin last-mile problems (specifically in the US where population density is much lower than UK/EU).
Side note - Why the heck are PE ratios so high on the LSE? Ocado is trading at over 220x earnings...
It's not that low... Amazon appears to do about 7B in EBITDA on about 100B revenue. I'd bet AWS is propping that up a bit with its really high margins.
If you compare them to another grocer (which they kind of are), their numbers seem more reasonable - the industry profit margins are typically single digits.
The point is that all retail is super low margin (in this case < 10%) which is made up for in volume. For Google the only incentive is to go towards a volume play because the margins will _never_ be great. The OP's point stands - this seems odd that Google would go after such a low-margin area, considering almost everything else they do has super high margins (30%+). The challenge in the US is that volume is hard to get because of last-mile economic restrictions.
If google cracks self driving vehicles then the margin would likely increase quite a bit by not paying drivers, if they applied similar technology to automate as much of the process at every part they likely could increase the margin again.
I've worked for large retailers (Staples in this instance) and they are not remotely efficiently run, bad warehouse management, bad stock management (old dated broken software), incredible lack of intelligence on stock ordering etc.
A company with the programming ability to manipulate data the way Google does could get a decent headstart on the competition in the short term (eventually others will catch up but that's the way the game is played in retail).
Hell throw in viable electric vehicles for the deliveries and you could eliminate driver costs and 2/3 of your fuel costs, that'd be a hell of a saving.
You'd also be able to offer a faster turn around time (multiple small vehicles vs multiple orders on a single van).
Throw in some nice UX stuff, real time alerts when you delivery is on the way drawn on a nice google map rather than "It'll arrive between 7-9" which means anywhere from 6:30 to 10pm in my experience and I'd sign up.
Ah good point. I missed he was saying it was low from Alphabet's perspective.
Personally I believe it's a play to keep Google's search intact - as more people go straight to Amazon to find products, it could move people away from using Google first for everything (meaning fewer searches and less effective paid ads).
I just checked Pitchbook and in 2014 Ocado has a ~3% EBITDA margin. This is hysterically low for a "technology" company.[0] For reference, Alphabet operates at ~30% EBITDA margin. The problem with food delivery profits is that they are hysterically thin and underpin last-mile problems (specifically in the US where population density is much lower than UK/EU).
Side note - Why the heck are PE ratios so high on the LSE? Ocado is trading at over 220x earnings...