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Erith fulfilment centre fire costs Ocado an estimated £35m in lost revenue

Ocado today reported a third quarter of two halves – before and after the July fire in its Erith customer fulfilment centre. 

Weekly orders in the first six weeks of the period – which in full covers the 13 weeks to August 29 – were 22% ahead, while average basket values normalised to £124 – 12% down from last year, when demand continued to be high even during the summer. Revenue for this first six weeks was 1.8% down on last year. 

But although the fire at the Erith, North London, fulfilment centre only damaged less than 1% of the grid – where robots carry out picking and packing, and although it was able to operate as a spoke hub and deliver for both Ocado Retail and Morrisons customers, revenue was 19% down for the remaining seven weeks of the quarter. Overall, revenue fell by 10.6% over the quarter.

“In addition to the need to cancel orders in the week following the fire, the temporary reduction in capacity reduced our ability to offer slots to new customers,” Ocado, a Leading retailer in RXUK Top500 research, says in today’s announcement. “Taken together, and net of the offsetting benefit of increasing capacity at other CFCs, we estimate that in the period we lost a total of around 300,000 orders, or around £35m of revenue, due to the temporary disruption.”

Other sites – including two new fulfilment centres, at Purfleet and Andover, taking the total to six full-size fulfilment centres – are now helping to take up orders quickly. Erith is expected to be back to full capacity by the end of November. The fire is expected to cost Ocado a net £10m, after insurance payments. 

Tim Steiner, chairman of Ocado Retail, says: “Despite the challenges we faced in the period, I am delighted to report that Ocado Retail is performing well, improving the customer experience even further and continuing to grow the business in a post‐lockdown environment. I would like to pay tribute to the efforts of all my colleagues who worked so hard to get Ocado back to business so quickly following the fire in Erith. The success of these efforts demonstrated again the resilience of Ocado and its people. 

“With a market leading customer offer and technology, we are confident Ocado Retail will continue to grow market share as we help them to roll out even more capacity and we look forward to Christmas and delivering strong growth in the new financial year, with our long term outlook as compelling as ever.”

Ocado also says it aims to mitigate the rising costs of labour, particularly for lorry and delivery drivers, that are currently adding up to £5m in costs as a result of skills shortages in this area. 

Melanie Smith, chief executive of Ocado Retail, adds: “There is so much to celebrate at Ocado Retail. On September 1 we marked the one‐year anniversary of delivering M&S food to customers, marking a transformational partnership between two iconic British brands. We are delighted to see such a positive response from customers to these M&S products, which now represent 29% of the basket. We’re also excited that the go‐live of new state‐of‐the‐art robotic customer fulfilment centres at Andover and Purfleet will significantly increase our capacity to serve customers and experience Ocado’s outstanding range, value and service. We are looking forward to another bumper Christmas and an exciting year of growth in 2022.”

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