Ocado forecasts weaker sales as shoppers seek more budget items

Ocado Retail sales are set to fall this year as Britons’ grocery shopping demand shifts to more value-for-money items and smaller orders.  

The online retailer said surging energy costs and other inflationary pressures had led to more customers ordering smaller basket sizes and cheaper products, including from its own-label range.

Transactions averaged £116 during the 13 weeks ending 28 August, a 6 per cent drop on the equivalent period in 2021, with a particularly noteworthy slump seen towards the end of the quarter.

Thanks to the large increase in customer transactions and price hikes, the company’s retail division, a joint venture with Marks & Spencer, still managed to boost its revenues by 2.7 per cent to £531.5million.

But while Ocado predicts ‘even stronger growth’ in demand in the fourth quarter, it believes this will not be enough to stop full-year revenues from declining.

It further anticipates earnings will be impacted by significant cost headwinds, with electricity prices more than three times higher than last year and fuel up 15 per cent.

Due to soaring energy prices, the Hatfield-based firm is also seeking alternatives to dry ice, commonly used to chill frozen food, which it expects will add an extra £15million to £20million in annualised costs.

Chief executive Tim Steiner said: ‘We remain focused on providing Ocado Retail customers with the best possible value to help them navigate the cost-of-living crisis, and are encouraged by the positive underlying trends in the business.’ 

Ocado Group shares plunged 10.7 per cent to £7.10 in early trading following today’s trading update, making it the biggest faller on the FTSE 350 Index.

In the past 12 months, their value has dropped by around 58 per cent, having more than doubled during the first year of the pandemic when lockdown restrictions encouraged more people to grocery shop online.

Trade has slowed as Britons have returned to high street stores, but the firm nonetheless attracted a record 946,000 customers in the third quarter, which helped drive an average of 374,000 orders per week.

To satisfy the growth in demand, Ocado has opened four customer fulfilment centres since the start of 2021, giving it a total capacity of up to 600,000 weekly orders, as well as a ‘Zoom facility’ in London’s Canning Town district.

The latter site is part of the group’s recently-launched ‘Zoom by Ocado’ delivery service, whereby customers in certain parts of the English capital can receive up to 10,000 products within one hour of ordering.

Another one of these warehouses just opened in Leyton, East London, while a further two are planned to open in the coming six months across other UK cities.