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Ocado reports sales growth – but losses widen as it counts the cost of robotic warehouse fire

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Ocado has reported fast-growing sales – both to its grocery customers and to the third-party retailers who license its software and fulfilment solutions in order to build their own ecommerce businesses – in its latest financial year. But the cost of a fire at its Andover robotic warehouse last spring was among the factors that saw pre-tax losses widen to more than £200m. 

Ocado, a Top100 retailer in IRUK Top500 research, today reported sales growing by 10.3% in the year to December 1 2019, but statutory losses widened to £214.5m after accounting changes and as a result of the fire that took place in its robotic warehouse in Andover last spring.

Group sales of £1.7bn were up by 9.9% on the previous year. That includes retail sales of £1.6bn, which grew by 10.3%. The retail group said that it had invoiced its international solutions partners – for whom it is supplying the software and infrastructure to power online and multichannel sales – £81.4m, a rise of more than 38% over the year. Pre-tax losses grew to £214.5m from £44.4m a year earlier. 

The results come after a year in which Ocado sold half of its retail grocery business to M&S and acquired new clients for its retail systems in Aeon in Japan and Coles in Australia. Its first international customer fulfilment centres (CFCs) are expected to go live in the first half of its current financial year, for Groupe Casino in Paris, and Sobeys in Toronto. 

Andover fire update 

But closer to home a fire in its Andover warehouse reduced its overall sales capacity by 10%, and meant that its UK retail customer Morrisons agreed to move out of the Erith warehouse temporarily, hitting current and future income from this client as a result. 

Full-year Ocado retail sales grew by 10.3% despite the impact of the fire, and Ocado says an insurance claim has been accepted, with £74m already received by the end of the period. But in the meantime, the retailer’s figures include an £88m one-off cost in relation to the fire. Costs of £111.8m have been partly offset by insurance proceeds of £23.8m received in the last financial year.

During the coming year Ocado expects to invest £600m, mostly related to building infrastructure for its third-party clients.

Ocado Group chief executive Tim Steiner said: “We are pleased to report results which show strong momentum in the business. Although statutory results reflected a combination of factors, including the impact of the Andover fire, the underlying performance of Ocado Retail and the successful growth of Ocado Solutions were very encouraging. 

“Our progress over the last twelve months, which includes signing our eighth and ninth Solutions clients, Coles in Australia and Aeon in Japan, and successfully maintaining strong growth post‐Andover, has demonstrated many of Ocado Group’s most important characteristics: resilience, innovation, focus and execution. It is these qualities that will enable us to continue to develop the Ocado Smart Platform to meet the evolving needs of our partners at the cutting edge of online grocery retail. 

“The first half of this year will see a new milestone for Ocado Group; the opening of the first customer fulfilment centres for our international partners. These state‐of‐the‐art robotic facilities are a core part of an end‐to‐end solution embracing automated fulfilment, an intuitive and easy to use webshop, and hyper‐ efficient last‐mile delivery which will enable Sobeys and Groupe Casino to deliver the same outstanding customer experience to consumers in Canada and France as Ocado Retail does today here in the UK.”

“The landscape of grocery retailing globally is changing. We are excited to be able to play a leadership role through Ocado Retail, our joint venture with M&S, and through our Solutions partnerships, as we fulfil our mission of ‘changing the way the world shops’.”


UK retail strategy update

In its UK business, the retailer said that its one-hour Ocado Zoom delivery service had proved popular from its first site, in Chiswick, west London, and it was now planning another site. It is also set to open its first mini-CFC in Bristol, with capacity to handle 30,000 orders a week, compared to 65,000 for a standard-sized one. 

In its Erith CFC in south east London, it says that robotic arms are now helping to deliver customer orders and that it is continuing to develop vision systems, tactile gripper technology and machine learning so that it can use robotic picking in more of is customer orders. It also says that it has reduced food waste – items that are discarded because they are past their best-by date – from 0.8% to 0.4%, which it believes is the best in the industry.

Last year M&S bought half of the Ocado UK grocery business, which will start to supply M&S groceries instead of Waitrose groceries in September.  The switch is set to be complete by September this year, and the retailer says that a range review showed that many items would be available at the same quality or better, at the same price or lower. It also expects to add more M&S lines to increase choice.

The retailer said in today’s results that it had brought a claim for damages in respect of confidential information and intellectual property against directors of Project Today Holdings, trading as Today Development Partners, led by former Ocado co-founder and retail director Jonathan Faiman. Last May Waitrose said it was working with Today Development Partners to triple its online grocery sales, but the John Lewis Partnership later said it would not be proceeding with the partnership. 

Today Ocado Group said in its full-year figures: “We strongly believe in the merits of our case. Ocado’s intellectual property is its greatest asset and represents a significant portion of the group’s value; we have spent the last 20 years developing our intellectual property, technology and know‐how. The group relishes fair competition, but will vigorously protect its intellectual property and challenge any individual or organisation that uses unlawfully obtained information, either directly or indirectly. The group is resolute that it will protect all of its stakeholders’ interests.”

Image courtesy of Ocado

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