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Ocado starting to ‘change the way the world shops’ after a ‘transformational’ half-year

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Ocado says it is starting to change the way the world shops after a “transformational” half-year in which it has struck deals to supply its technology to retailers from France to the US, and seen its own retail sales continue to grow.

During the six months the retailer signed partnerships with Sobeys, in Canada, ICA, in Sweden, and Kroger, in the United States to supply both its software and robotic infrastructure solutions. Work has now started on the warehouse for its tie-up with Groupe Casino. Ocado also said that its latest UK customer fulfilment centre, in Erith, South London, would be the largest automated warehouse in the world once it is fully up and running. Ocado has created 650 new jobs over the period, including more than 150 new software and hardware engineers, and it expects to add another 1,500 before the end of the financial year. Its technical team now numbers more than 1,550 and is expected to continue to grow this year.

Ocado reported group revenue of £799.9m in the half-year to June 3, 12.1% up from £713.8m in the same period last year. Of that, £736.6m (+11.7%) was from retail revenue, while £63.3m (+16.8%) was income generated by its technology partnerships. The rise in retail sales, said Ocado, came despite the effect of severe weather in the first quarter of its year. Pre-tax losses came in at £9m, down from a profit of £7.7m last time, after investment in its ecommerce platform  and warehouse solutions. Ocado said it expected to see retail sales grow by as much as 15% this year, but profits would continue to be affected by investment in its customer fulfilment centres (CFCs).

Chief executive Tim Steiner said: “This is a transformational period for Ocado. We have developed unique and proprietary technology to offer retailers an end-to-end operating solution for grocery retailer that enables them to meet the changing needs of consumers. In the past six months we have partnered with some of the world’s biggest, best and most innovative retailers to help them redefine the shopping experience for their own customers. As a result, we are beginning to fulfil our ambition to change the way the word shops.”

He added: “The success of our technology platform continues to be demonstrated by our UK retail business, where Ocado continues to outpace our competition in terms of our service offering and our growth. We have just opened our latest state-of-the-art customer fulfilment centre which, once at full capacity, will be the largest automated warehouse for online grocery retail in the world and will showcase the scalability, adaptability and efficiency of our platform. 

“In order to fully capitalise on the opportunities ahead of us, we are working at pace, investing more and focusing sharply on execution to bring on new capacity in the UK and to achieve successful outcomes for our partners. We are confident that we have the ability to scale-up the business, deliver on our new commitments, drive sustainable growth and deliver value to all our stakeholders.”

Here’s what else the retailer said about its multichannel retail strategy.

The customer

Shoppers bought more often but spent slightly less during the first half. Orders rose by 11.9% to an average of 291,000 a week, peaking at 315,000 during its busiest week, but the average basket of £108.18 was down by 0.2% compared to the same time last year.

Ocado said new ways to help customers shop include its Regulars feature, which saved shopping time while maintaining the size of baskets. Customers continue to move towards ordering via mobile phone; as a result their baskets were slightly smaller, offset by price inflation, but more frequent.

It also says its delivery punctuality and order accuracy are market leading, boosting its customer service.

Operations and logistics

Operations got underway at Ocado’s fourth customer fulfilment centre (CFC), in Erith, South London. This, says Ocado, is the world’s largest automated grocery fulfilment facility; in the first three weeks it handled the same volume of goods as its first robotic warehouse, in Andover, did in 32 weeks. It also opened a second general merchandise warehouse, also in Erith, which has enabled another £200m of sales capacity.

But while volumes rose costs at Ocado’s CFC rose too, by 19.4% to £65.8m, from £55.1m last time. This was due to higher costs and a higher mix of orders at its Andover site. The company said engineering costs were higher as it worked to improve the functionality and reliability of the MHE solution at its Dordon site. Ocado owns 50% of the MHE joint venture company, while Morrisons owns the other half. 

Morrisons, Ocado’s first commercial partner, continued to roll out store picking at its stores across the UK. 

Trunking and delivery costs were also up, by 9.7% to £90.2m, as wage and vehicle bills rose in response to higher order volumes and to inflation. However, said Ocado, this remained below the rate of sales growth as delivery became more efficient. Each of its vans now makes 189 deliveries a week, 5.3% up on last time. That rise has come as it improved its routing system, and as customer density improved.

Image courtesy of Ocado

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