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Ocado focuses on retail recovery as its grocery business posts falling sales and a pre-tax loss

Ocado is running a 'perfect execution' programme as it focuses on boosting customer numbers and cutting losses. Image courtesy of Ocado Retail/M&S

Ocado Retail is focusing on recovery as it reports a 3.8% fall in full-year sales and a bottom-line loss.

The online grocer, a joint venture with Marks & Spencer, turned over £2.2bn in 2022, 3.8% lower than the previous year as it won more customers (+13% to 940k) but those customers spent less on each order. Earnings before interest, tax and one-off costs fell to a loss of £4m, from a profit of £150.4m last year. Ocado Group says this is mainly because of investments in capacity for future growth, in marketing to grow customer numbers and rising costs as a result of inflation.

Average basket values fell by 8.5% to £118, as customers ordered fewer items in each shop. This, says Ocado, reflects the unwind from pandemic shopping behaviours and the UK cost of living crisis. However, it says that since its customer numbers and online market share are growing, Ocado Retail will soon start to recover its fixed costs.

 The business is running a ‘perfect execution’ programme in 2023 as it targets recovery in both revenues and profit margins. Ocado Retail is now “confident that growing customer numbers, orders and increased utilisation of available capacity will underpin a return to strong sales growth and high mid-single digit EBITA [earnings before interest, tax and one-off costs] margins.”

Ocado Group figures

The update comes as Ocado Retail co-owner Ocado Group today reports group revenue of £2.5bn in the year to December 31 2022. That’s 0.6% up on the same time last year. Pre-tax losses widened to £500.8m from a loss of £176.9m last year.

Revenues grew at its solutions businesses, which provides ecommerce and fulfilment services to third-party retailers in the UK (+13% to £802.7) and internationally (+121.9% to £147.8m). It is now working with 12 partners for its Ocado Smart Platform, and 23 sites, are now live. They include ncluding 12 international sites and 11 in the UK. Twelve – or almost half – of those launched in the last year, including nine customer fulfilment centres and three Zoom hubs. The retailer says that its technology partners have reported higher growth in sales and customer satisfaction beyond rates seen in their local market. Ocado Retail, for example, has grown its market share to 12.3% in 2020, up from 11.7% a year earlier. In its third quarter figures, US supermarket Kroger, which sells through Ocado customer fulfilment centres in the market, reported delivered online sales up by 34% in the third quarter of 2022.

Ocado Group chief executive Tim Steiner says: “Over the last year every company has had its business model tested by a combination of macro-economic and geopolitical headwinds and I am pleased that thanks to the creativity and commitment of my colleagues, we have more confidence in our model than ever before.”

He adds: “Our strong balance sheet gives us the means to finance our growth through the mid-term (4-6 years) by which time we expect Ocado Group to be cash flow positive with the cash flows from existing CFCs sufficient to finance future investments. Over the last twelve months we have continued to deepen our relationships with our partners, and have learnt a lot about how to help them make the most of our world-leading technology. We are confident that we will see the benefits of these learnings in the next few years as we progress our mission to change the way the world shops, for good.”

The group is now preparing to launch an automated storage and retrieval system for customers beyond the grocery sector. 

Ocado is ranked Top350 in RXUK Top500 research

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