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Ocado losses widen as it invests in expansion against background of growing sales

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Ocado today reported widening losses despite growing customer numbers, sales up by 17.2% and the launch of

The investment costs of expansion took its bottom line in the full year to a £12.5m loss, compared to losses of £0.6m over the previous financial year. The online grocer reported gross sales of £843m in the 52 weeks to December 1. That was up by 15.2% on sales of £731.9m reported in the previous 53-week year, and by 17.2% in the same 52-week period in the previous year.

Profits before tax and exceptional items slid from a profit of £1.8m last time to a loss of £5.1m this time, while exceptional costs related to opening a new online grocery fulfillment centre and a non-food distribution centres as well as legal advice relating to the deal that sees Ocado technology underpin Morrisons’ recently-launched online grocery service took pre-tax losses to £12.5m from losses of £0.6m last time.

Ocado said it was benefiting as more consumers went online to shop. It saw active customers numbers rise to 385,000 from 335,000 at the same time last year. New customer acquisition was up by 40% on 2012, and Ocado said its focus was on frequent shoppers rather than irregular ones who needed to be tempted back with promotions. Most of the orders it receives, it said, now come from members of its SmartPass subscription delivery scheme. The company also reported lower cost per order following the opening of its second customer fulfillment centre, in Warwickshire, as well as a new non-food distribution centre, while its range broadened by about 20% to 34,000 products. Own-label sales were up by 60%, and non-food sales grew during the year. Some 45% of delivered orders were checked out over a mobile device, 34% of those over a mobile app.

The service, which started deliveries in the Midlands in January and has now expanded to Yorkshire, has got off to a good start, said Ocado, and the new scale was improving its own operating economics.

As well as supplying logistical technology and fulfillment centre space to support Morrisons’ online service, Ocado has also launched its own new site,, a pet shop and the first of a series of new specialist ecommerce sites. Other similarly specialist sites are scheduled for 2014 launches.

The online grocer also put the emphasis on improving customer service: on-time delivery rose to 95.2%, from 92.7% last time, and item accuracy to 99%, from 98% last time. “A high quality and reliable delivery service is critical to consumers adopting the online channel for their grocery shopping,” said chief executive Tim Steiner. “We believe our customer delivery service remains marketing leading in the accuracy of orders and on-time performance.”

Speed, ease of use and convenience were key to a strong shopping experience, he said. Ocado is also moving to improve personalisation. “Our aim,” said Steiner, “is to make the shopping experience more personal for each customer and we have continued along this path by having personalised homepages for customers when they are logged in.”

The company also announced the departure of Ocado co-founder Jason Gissing, leaving to concentrate on his family and on social and environmental issues, according to his co-founder Tim Steiner.

Ocado chairman Sir Stuart Rose said: “Jason and Tim started Ocado from scratch just over 14 years ago. Today the business is valued at £3bn, employing thousands of people, helping consumers around the UK in their busy lives. They have laid the foundations of a world-class business. To create a new supermarket in such a competitive marketplace is an amazing achievement.”

Our view: Growing losses at Ocado may be the headline news for the online grocer as it continues to invest and expand its service beyond its own customers. That’s likely to mean profits in the longer, rather than the shorter, term.

But what’s more interesting for other multichannel retailers is the emphasis this grocer places on its approach to growth. Investment has been key – first in technology such as innovative mobile shopping, and now in the distribution side of the business. It says that the customer experience is key to attracting more customers to shop online, and that is borne out by the various awards it’s won during the year from the likes of Which? and The Grocer. It’s also investing in personalisation, while at a strategic level looking to make sure that it focuses on retaining the more profitable customers who shop frequently and without the need for promotional offers. A telling statistic is that most of its orders now come from signed-up subscribers to its Smartpass scheme.

As Sir Stuart Rose, chairman of Ocado said, while the profits may still be missing, the highly-innovative company, “a new supermarket in a competitive marketplace,” is now worth £3bn.

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