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Changing shopping habits and labour problems see Ocado Q4 sales shrink 4%

Ocado: more customers buying less

Despite a 9% rise in weekly orders and an increase in active customers of 832,000, falling average order values has seen Ocado’s Q4 sales drop by 4%.

The retailer, which has seen sales rise by 32% compared to Q4 in 2019 has been hit by changes in shopping habits as lockdowns ended, as well as on-going labour issues, which had seen a fall in headcount at its Erith Customer Fulfilment Centre (CFC).

At the same time, shoppers were spending less: average basket value at the retailer has dropped 12% to £118, despite Ocado’s partnership with M&S giving sales a boost. Cost inflation has also had an impact says the company.

The retailer is countering these headwinds with the opening of a new CFC in Andover in August, which a third is planned for Bicester in the second half of 2022 and Luton in 2023. The company is also planning to extend its Zoom rapid delivery pilot from West London to a new site in Canning Town. Three further sites are also planned in 2022/23. Ocado believes that Zoom could add around £20m in revenues in the coming years.

Commenting on the results, Melanie Smith, Ocado Retail’s Chief Executive Officer, says: “Over the past year our brilliant colleagues across Ocado Retail have been working to further strengthen our range and deliver more value for money to customers, as we continually refine and improve on the best customer proposition in the market. We are delighted that M&S products now account for nearly 30% of the basket – our customers clearly love the opportunity to buy M&S food online. The investments we have made over the past year mean we have significant capacity for growth in 2022 and we will continue to invest in facilities, systems and people in the year ahead to deliver on our long-term growth potential. We are working hard to manage current industry challenges, and Ocado Retail has great momentum as we get ready for another record Christmas and further strong progress next year.”

Tim Steiner, Chairman of Ocado Retail, adds: “We are very encouraged by the underlying trends which are driving growth in our business. Hundreds of thousands of UK consumers have tried online grocery over the last eighteen months and the vast majority are continuing to shop online and are not going back to physical stores. These customers increasingly appreciate the customer service provided by and Ocado Zoom and the range of customer missions that we satisfy from the big basket to the top-up shop. We can see this in the strong growth in customer transactions at Ocado Retail over the second half of the year. At a time of growing momentum in the channel shift from physical stores to online we are bringing significantly more capacity to market and are confident that we are on a strong, long-term growth trajectory.”

What the analysts think

Russell Pointon, Director, Consumer, at equity research firm Edison Group says: “Fresh off the news that it has won a patent infringement court battle in the US with rival AutoStore, the main headline from Ocado’s trading statement is Q4 sales of £547.8 million, a decline of 3.9% yoy largely because of the normalisation of average basket values, which fell 12% to £118 as many consumers returned to the office and spent less time at home. In addition, ongoing shortages in the labour market affected its delivery and customer fulfilment centre roles. Q4 sales are nevertheless still up 31.6% on 2019, and average customer orders per week were up 8.5% to 375,100 versus the prior year, driven by a 22% increase in active customers to 832,000. The partnership with M&S continues to impress, with customers even more hungry for M&S products than those of predecessor Waitrose, management estimates M&S products now represent more than 30% of Ocado’s total retail sales.

He adds: “Looking ahead, if management can mitigate the impact of cost inflation due to nationwide utility price increases and dry ice shortages, the 2020-21 outturn is expected to be in line with guidance. It is forecasting a return to mid-teens revenue growth in 2022, at the top of the pre-COVID-19 range of 10-15% and plans investments of around £50 million in 2022 across a variety of areas to support growth.”

Xian Wang, VP, Edge Retail Insight, Edge by Ascential comments: “The pandemic set in motion a permanent and sustained shift to online grocery shopping. Data from Edge by Ascential shows that during the lockdowns of 2020, edible grocery ecommerce jumped more than 60% in the UK, almost six times the growth in 2019 (up 11%). Then, despite tough comparatives, edible ecommerce grocery  rose again in 2021 in the UK, anticipated to end the year up 17% – remember that is growth on top of the unprecedented switch to buying groceries online at the height of the pandemic. Ecommerce penetration in edible groceries in the UK is about 10% of total edible grocery sales in 2021 and is set to rise to 12% by 2026.”

Wang continues: “Against that backdrop, pureplay ecommerce grocer Ocado, which has for years been investing in robotics innovation, highly-automated microfilment centres and last-mile delivery is in a strong position to take advantage of the new era of grocery ecommerce. In its Q3 trading statement, Ocado said it had added 64,000 new customers over the summer, reaching a total of 805,000 customers. It also announced additional fulfilment centre capacity to open in 2022, which it said would enable the group to service 700,000 orders a week from – its joint venture with Marks and Spencer – next year.”

Wang adds: “Ocado’s main approach has historically been to operate as a technology partner to grocery retailers in the UK and abroad. It has partnerships with Kroger, Groupe Casinos and Sobey and more coming on stream next year. It has also been investing in its Zoom last-mile service as the ultra-rapid sector raises customer expectations with regard to speed of delivery. Ocado is ahead of the curve in optimising digital services offering personalised meal planning and flexible fulfilment. For instance, it has a range of ‘Easy Shopping’ options on its grocery site, including ‘Ocado Regulars’, which automatically adds shoppers’ favourite or recurring products to their basket every week, as well as ‘List Search’, which enables shoppers to search for multiple items at once.”

Wang concludes: “Can Ocado deliver a bumper Christmas? A lot will depend on whether we get more restrictions as a result of the new coronavirus variant and people are forced to stay home again. Long-term though, with ecommerce costs cutting into retailer profits, Ocado, with its end-to-end tech-enabled logistics and fulfilment OSP platform, could be just the ticket.”

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