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Ocado says Covid-19 will ‘redraw the landscape’ for online groceries as its retail sales rise by 27%

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Ocado chief executive Tim Steiner today said that Covid-19 had changed the way that shoppers buy their groceries – and that there would be no going back. His comments came as the online grocer reported a 27% rise in retail sales and saw profits in its retail business grow by 87%. 

The online grocer, ranked Top150 in RXUK Top500 research, today reported group revenues of £1.09bn, up by 23.2% in the first half of its financial year, compared to the same time last year. Its own direct retail sales grew by 27.2% to £1.02bn, while sales from its UK solutions and logistics business, which supplies Ocado ecommerce and logistics technology to UK retailers including Morrisons, came to £320.4m, up by 9% from last time. Its international solutions business contributed £1.6m in the six months to May 31

Tim Steiner, Ocado Group chief executive, said: “The world as we know it has changed. As a result of Covid-19 we have seen years of growth in the online grocery market condensed into a matter of months; and we won’t be going back. We are confident that accelerated growth in the online channel will continue, leading to a permanent redrawing of the landscape of the grocery industry worldwide. This will mean more demand for Ocado Smart Platform from current and prospective partners and our recent fundraising will ensure that we are able to meet that demand. It will also mean that we can invest more capital in innovation for our partners and further expand our leadership as the world’s preeminent solutions provider in online grocery.”

However, while top-line profitability grew by 87.3% to £45.7m in the Ocado retail business, the Ocado Group’s UK solutions and logistics business reported EBITDA of £29.3m, 28% down on the same time last year, partly as a result of lost earnings from Morrisons following the fire in its Andover customer fulfilment centre in February 2019. Since then Morrisons has taken a holiday from the Erith CFC in order to give Ocado more capacity.  However, Ocado has received £94m so far from its insurers against the costs of the fire. Elsewhere, Ocado’s international solutions business saw EBITDA fall by 90% to a loss of £45.1m as the company invested more heavily in expansion. At the bottom line, pre-tax losses came to £40.6m after exceptional items of £39.1m, mostly related to the Andover fire. Losses have however reduced from £147.4m at the same time last year.

Ocado pointed in its figures to industry data that suggests online grocery sales have doubled within months, while US online grocery sales are now running six times ahead of what they were last August. Ocado says almost a third (30%) of UK shoppers say they will order more of their groceries online after the pandemic, whilst 90% of US online shoppers also expect to buy this way in the future. Ocado’s nine ecommerce retail customers turn over £210bn between them – and Ocado sees a fee opportunity from this of between £3.5bn and £26.3bn, depending on what proportion of sales are made online. 

In order to gain from increased sales, Ocado says it launched its first two international customer fulfilment centres, for Groupe Casino in France and Sobeys in Canada, ahead of plan and despite Covid-19 disruption. It has also worked with Morrisons in the UK and Bon Preu in Catalonia to expand the amount of fulfilment done through their stores – and where operating levels are now at more than five times that seen at the beginning of March. Meanwhile, in the US, Kroger has now ordered a further three CFCs, taking its total that Ocado will build for the customer to nine. 

Online retail strategy

Ocado’s sales grew by 27.2% in the first half of the year, thanks to increasing demand in response to Covid-19, during which it prioritised existing and vulnerable customers. Sales rose almost exactly in line with the average basket size, which grew by 27.7% as customers opted for one large shop a week rather than a series of smaller orders as previously. Some 97% of orders were delivered on time while substitutions ran at 4%. 

The retailer says it is on track with its preparations to switch from Waitrose to M&S products in September, following M&S’s acquisition of half of the Ocado Retail business. It says that at first Ocado Retail will sell more than 5,000 M&S food lines, with more to follow, and it will also stock about 1,600 M&S clothing and home lines. Currently Ocado says it sells a range of about 4,000 Waitrose products, of which about 4,000 are food.

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