NOTE: This piece has been updated following Ocado Solutions CEO Luke Jensen’s interview at the World Retail Congress this afternoon.
Ocado today suggested that shoppers are continuing to buy more online following the Covid-19 lockdown as it reported retail revenues up by more than 50% in the third quarter of its financial year. It said demand for M&S products was particularly strong ahead of its joint venture partner’s food range going live on September 1 – triggering its strongest ever forward forward order day.
The switch online
Revenues of £587.3m in the 13 weeks to August 30 were 52% up on the same quarter last year, said Ocado Retail, the joint venture between Ocado Group and M&S. During the quarter it handled an average of 345,000 orders a week – 9.6% ahead of the 315,000 placed at the same time last year – worth an average of £141. The ordering pattern appears to suggest that grocery shoppers who turned online during Covid-19 lockdown are continuing to buy online. The retailer says it is on track to increase its capacity by 40% in 2021, and now expects to report full-year earnings before tax, interest and asset writedowns (EBITDA) of at least £40m.
Speaking at the World Retail Congress this afternoon, which this year is being held online, Ocado Solutions chief executive Luke Jensen said he believed that the coronavirus pandemic and lockdown had caused a permanent shift to the way customers buy. “[Consumer behaviour] has definitely changed irrevocably,” he said. “Our observation from pre-crisis was always that the big tipping point for consumers was the first time they shop online, and then once they’ve shopped three or four times online. Once they’ve shopped once they will shop again, once they’ve shopped three or four times they will shop regularly. You get that demand that really sticks.”
He said that all grocers had had to act fast to meet “massively excess demand” during pandemic lockdowns around the world, as shoppers rushed online. Ocado saw web traffic go up “hundredfold” while demand for stock went up “tenfold overnight” and the size of baskets increased “radically”.
“You had to think very fast,” said Jensen. “There was massively excess demand versus what we and the industry could supply. What was very clear was that we had to take action to try to stretch our fulfilment capability but we were going to find ourselves in a position where you weren’t going to be able to satisfy everyone. You have a tsunami of demand that hits you – how are you going to deal with priotisiations. We wanted to prioritise vulnerable customers but also our own customers.”
The retailer said it had been able to increase the capacity at one of its London fulfilment centres by 50% over a couple of months, by putting more robots to work and through decisions guided by smart Ai that included stopping selling bottled water in order to increase the physical space available both in its facilities and on its vans. At the same time it helped its UK partner Morrisons to increase its ability to service online orders from its stores fivefold.
The switch to M&S
In today’s Ocado trading statement, the retailer said that customers could order M&S products from the first week of August, although they only received deliveries from September 1 – as the fourth quarter started. Ocado said the day the M&S range launched was its biggest ever forward order day, and that 98% of its customers were already shopping from the M&S range. It says that M&S products account for a greater share of baskets than Waitrose products did previously. Ocado currently stocks about 4,400 M&S products, and previously stocked about 4,000 Waitrose lines.
Melanie Smith, chief executive of Ocado Retail, said in today’s trading statement: “These are transformational times for Ocado Retail with M&S products now exclusively available at ocado.com. The successful switchover means that M&S products are available to buy in a weekly shop side by side with branded products for the first time. As a result, we can now offer customers more choice and better value than ever before, wider ranges than any traditional retail and thousands of products that are only available online through Ocado.com.
“Our model brings customers the very best customer experience, supported by sustainable economics and respect for the environment and the communities we serve. Ocado’s innovative technology solution provides the best service metrics for any online grocery service in the UK. We believe that our proposition is the lowest carbon footprint way to shop in terms of emissions and food waste, with increased hygiene meaning less handling of product in our fulfilment and delivery.
“Our aim is to continue to set the bar as we begin again to welcome new customers who are seeing the benefits of online shopping in ever greater numbers and we remain focused and on track to increase capacity by 40% through to 2021. Finally, I would like to thank my colleagues for their hard work and dedication in making this happen, even under the most challenging circumstances.”
Marks & Spencer is ranked Elite and Ocado is ranked Top150 in RXUK Top500 research.