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Ocado first-half grocery revenues rise by a fifth as it wins more online customers

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Shoppers are doing more of their grocery shopping online. Image courtesy of Ocado Retail/M&S
Shoppers are doing more of their grocery shopping online. Image courtesy of Ocado Retail/M&S
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Ocado first-half grocery revenues rise by a fifth as it wins more online customers

Ocado’s online grocery arm has reported a 20% rise in revenues and a narrowing of pre-tax losses in a first-half when customer numbers grew quickly, despite the easing of pandemic restrictions. It is now expanding its fulfilment capacity in anticipation that more shoppers will continue to buy online in the future. That will depend on how shoppers want to buy post-Covid – but the retailer says current evidence suggests that more orders are being placed, even as the amount spent is returning to normal.

 

The online grocer and retail technology business today today reported group revenue of £1.3bn in the first half of its financial year, to May 30. That’s 21.4% up on the same time last year. Its retail sales, via Ocado Retail, grew by 19.8% to £1.2bn. Ocado Retail says its orders and customer numbers are growing strongly as Covid-19 restrictions ease. Sales from international sales of its Ocado Smart Platform grew to £26.6m, from £1.6m a year earlier, and the retailer announced its tenth partner, Auchan Retail, with which it will develop the online business of Alcampo in Spain.

 

Half-year pre-tax losses reduced to £23.6m from £40.6m a year earlier as the company continues to invest in technology, fulfilment capacity and systems.

 

By the end of the half-year, its grocery business, Ocado Retail, jointly owned with Marks & Spencer, was serving 777,000 active customers. That’s 22% up compared to 639,000 in the same period last year. The retailer says that the easing of social distancing means fewer meals are being eaten at home, and basket sizes in the second quarter of the year have begun to return to normal. By the end of the half-year, basket sizes were 10% lower than the average £138 for the whole period.

 

Ocado says its retail sales will be “highly dependent on consumer behaviour following relaxation of Covid-19 restrictions,” but it also says it is “encouraged by performance in Q2 which shows a strong increase in customer transactions offsetting the normalisation of the value of the average basket”.

 

Ocado Group chief executive Tim Steiner says: “As we head towards a post Covid-19 future, it is increasingly clear that the landscape for grocery worldwide has changed, for good. Over the last eighteen months, we have shown that the Ocado model works even in the most challenging and fluid of environments. That ours is a proven model in online grocery has been again demonstrated by the strong performance of Ocado Retail, the historic core of the Ocado business, which has led the market in customer experience, increasing sales by 20% in the period, thanks to a significant increase in customer numbers, while continuing to show sustainable and industry-leading profitable growth.”

 

Scaling fulfilment

During the pandemic, Ocado’s growth has been constrained by its capacity since its orders are picked by robots rather than humans, making it harder to expand numbers quickly. Now its focus is on expanding its fulfilment fast in order to enable more customers to buy from it online. Its Andover CFC, rebuilt following fire, will go live in the third quarter of the year, followed by a new centre in Purfleet. Together these will enable it to deliver up to 600,000 orders a week.

 

During the first half, it opened its first mini customer fulfilment centre, in Bristol, which it says has ramped faster than previous facilities and is now operating at more than 50% of its potential 30,000 orders per week capacity four months after going live. The site is now run using its newest 500 series of robot. It also opened its first CFCs in the US, for its US customer Kroger, in Ohio and Florida.

 

It is now stepping up the rate at which it opens CFCs, with five more expected to open in the current financial year – including a second mini-CFC at Bicester – and nine next year, and is also working to reduce costs such as the engineering costs of keeping its bots in operation. Five of its 10 partners now use its in-store fulfilment solution, while seven are now live on the Ocado Smart Platform.

 

Immediacy

Looking ahead, the retailer aims to make fulfilment faster, with plans for more than 12 Ocado Zoom micro-fulfilment hubs to offer delivery in as little as an hour, added to an existing site in London. However, Steiner said in today’s results presentation that the market for delivery services built on ‘immediacy’ and offered by a range of companies from Amazon to Getir and more was tiny compared to that of the large hypermarket-style online shops.

 

“In the longer term,” he says, “those immediacy offerings are for the mission – such as the football, we just realised we run out of beer, let’s get some beer in while it’s actually still ongoing. People are not going to swap a 45, 50, 55 item weekly basket for 20 shops with two or three items coming three times a day. That’s just not how people are going to behave. People do plan their lives predominantly, and then have spontaneous needs on top of them. And so I think it’s an interesting sector. But it’s not going to be as big.”

 

Future technologies

Ocado Group is continuing to work on new technologies as it looks to increase the future value of its platform. Over the latest half-year it invested £10m in Oxbotica, as it works to cut the cost of logistics – the largest single cost in online grocery fulfilment – by developing autonomous vehicles. Currently Ocado says it sees autonomous use cases in scenarios from running to last mile delivery, and from kerb to kitchen. A team in its advanced technology division expects to have first prototypes within two years.

 

Ocado says it has now settled litigation with its former COO Jonathan Faiman and former head of transformation Jon Hillary and their company Project Today Holdings with an agreed statement of facts and a “significant” payment by the defendants to Ocado. It continues litigation against AutoStore in the US, Germany and UK. Both cases concerned intellectual property.

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