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Ocado posts 16% sales rise after a year of expansion

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Ocado today unveiled a 16% rise in sales in a year in which it extended its geographical coverage and built up its range of own brand product.

The online grocer expanded to new ‘spokes’ in Bristol and Wimbledon during the year, adding a new ‘spoke’ site in Oxfordshire that opens today. At the same time it has invested in a new customer fulfillment centre in Warwickshire which is expected to open in the first quarter of 2013.

During the year Ocado has also expanded the range of goods it sells, as it moves away from being the de facto Waitrose delivery service, boosting its own range from 250 to 620 products. Its own-label products were, it said today, found in 70% of customer orders by the end of the year.

In the year to November 27 2011, the online grocer’s revenue rose by 16% to £598.3m, up from £515.7m at the same time last year. Operating profit improved to £1.1m from a loss of £5.4m last time, but at the bottom line, after the cost of servicing its debts, the company turned in a pre-tax loss of £2.4m, a £9.8m improvement on its 2010 full-year loss of £12.2m.

Chief executive Tim Steiner said the online grocery market had continued to develop in 2011 and that Ocado would develop with it. “We believe this growth is evidence of a structural shift in consumer behaviour,” he said, and we will continue to see an expansion of the online grocery retail market.

“We will continue to pursue our existing strategy in 2012 to improve what we offer our customers and increase our capacity to meet growing demand.

“It is our mission to make sure customers continue to regard Ocado as the home of the market-leading offer in online grocery shopping.”

He said online grocery sales were predicted to rise to £11bn by 2016 and that Ocado was expanding its capacity in order to meet this. “We believe that the biggest threat to the growth of the online market is under-investment in capacity,” said Steiner. “Retailers will not be able to service nor benefit form this increasing customer demand unless they invest in online capacity.”

During the year Ocado’s average orders increased in number, by 18.6% to 110,219 from 92,916 last year, but declined in value, by 1.7% to £112.15 from £114.06. It put that decline down in large part to the move of customers towards its Ocado Delivery Pass customer loyalty scheme, which now accounts for the majority of Ocado orders.

The company said it was also focusing on value in order to appeal to a wider audience. Its second customer loyalty scheme, the Ocado Savings Pass, offers subscribers a 10% discount, while the company is also price-matching around 7,000 products to the Tesco range.

In addition, it said, Ocado had developed its range to the point where it now offers “a grocery range equivalent in size to our largest store-based competitors,” and over the next year will grow from around 20,000 products to 30,000 products. By the end of 2013 the company also aims to increase its non-food range, driven by a dedicated non-food team.

In the last year Ocado, known for its technological innovation, launched its new Webshop in order to speed up the shopping process. Checkouts by mobile devices grew to 18% by the end of a year that saw it develop additional apps for Blackberry and Windows Phone 7 mobile devices.

Chief financial officer Andrew Bracey said: “With a sales increase of 16.6% in 2011, we are confident that Ocado grew faster than other players in the sector.”

Jon Copestake, retail analyst at the Economist Intelligence Unit, said: “This could be a pivotal year for Ocado after a disappointing 2011 ending with December profit warnings.

"Much depends on whether a second distribution centre will be matched by demand growth. Ocado also faces competition from Waitrose as the supermarket develops its own online business, ending an exclusivity agreement for the London area last July. Finally Ocado needs to convince investors over long term strategy.

"It has not turned a profit since it began trading 12 years ago. The automated online-only system Ocado uses is an advantage, but growing competition from the very grocer it relies on for sales is a worry.”

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