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Ocado: insights into the grocery and technology company’s strategy

Sports Direct and Ocado update investors on their multichannel strategies

Online grocer Ocado today reported double-digital growth in sales and profits in its half-year results. Group sales of £713.8m were 22.1% up on last time, while retail sales of £659.6m were 22.1% ahead. Pre-tax profits of £7.8m in the six months to May 28 were 9.4% down from the £8.5m reported at the same time last year.

Chief executive Tim Steiner said price deflation was now starting to ease in the UK market after several years, and that he expected the trend to support the profitable growth of his business. “As the channel shift to online advances we continue to gain share in a competitive UK market,” he said. “We expect the trend for grocery shopping online to continue as customers become more tech savvy and gain confidence in the online services available. Ocado will be a natural beneficiary of that trend thanks to its industry-leading customer offer.”

We took a look at Ocado’s figures to see what else the grocer, a Top100 retailer in IRUK Top500 research, says about its multichannel strategy.

Operations & logistics

Ocado’s Smart Pass, a paid-for subscription scheme that entitles members to free delivery and 10% savings on selected brands, is having a marked effect on order frequency and value. It appears that members are ordering more often but spending less each time, with order volumes rising by 15.6% during the first half to an average 260,000 a week. basket sizes fell at the same time to £108.45, down by 1.4%. Ocado said in its figures that this was “impacted by the continued take of Ocado Smart Pass and reduced multi-buy promotions”. More than 50% of first-half sales were from Smart Pass customers. “Membership helps drive loyalty and consumer sped as the ‘sunk cost’ of the scheme encourages customers to maximise the opportunity to use online shopping as part of their weekly routine,” Steiner said.

The customer

Steiner says Ocado’s focus is to “constantly improve” its customer experience in order to reflect their changing preferences and habits. This includes offering a high quality service, user experience, a wide range of products and competitive prices.

“We believe that consumers are attracted to the online channel when they are offered a superior proposition compared to store-based alternatives,” he said. “We aim to provide this by ensuring customers can shop anywhere, any time, across devices and between family members in an intuitive and swift manner from check out to check in.” New features in this include the use of Apple Pay and the ability to see three days worth of order slots.

The retailer says accuracy and punctuality are “crucial elements of providing a compelling service to our customers.” It achieved 98.9% order accuracy in the first half while 95% of deliveries made in a one-hour time slot arrived on time or early.

Brand awareness

Active customers grew to more than 600,000 by the end of the period, 11.3% up on last time as the company worked to retain new customers and reactivate lapsed customers through targeted messages and vouchers.

Ocado’s ecommerce customers

Ocado is slowly starting to win more customers for its in-house developed platform. It continues to work with Morrisons, whose online grocery business, it said, is continuing to grow. It is also testing a new pick from store solution which will power a click and collect service for that supermarket.

Ocado recently announced a partnership agreement with garden centre Dobbies, and has also signed its first international partner for the system. It says conversations are continuing with “multiple retailers” to adopt its technology, and that Amazon’s acquisition of Whole Foods should be “a positive catalyst in advancing these discussions”.

Steiner said: “Grocery retailing is changing and we are ideally positioned to enable other retailers to achieve their online aspirations. We expect the our recently announced international partnership to be the first of many and look forward to helping more retailers provide a high quality service to their customers in this rapidly evolving market.”

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