The online grocery joint venture between Ocado Group and Marks & Spencer has lowered its annual sales outlook amid a faster than expected return to pre-pandemic shopping patterns and rising inflation.
Ocado Retail today posted a 5.7 per cent decline in sales for the 13 weeks to February 27, its first quarter, to £564.7 million and said that it now expected revenue growth this year “closer to 10 per cent”, having only last month forecast growth in the “mid-teens”.
It warned that the uncertainties over the scale of food price inflation this year, which have increased significantly since the war in Ukraine, overall market demand and the continued return to pre-Covid shopping patterns, with preference for deliveries on Friday and Saturday, “mean that while easier comparatives, strong customer demand and further growth in capacity should see revenue growth end the year in the high teens, the full-year growth rate may be closer to 10 per cent”.
The cautious trading update sent shares in Ocado, which also operates a grocery technology infrastructure business for third parties, down 102½p, or 8.5 per cent, to £11.01.
Shares in M&S, its partner, fell 4.6 per cent and rival food retailers also weakened on the London Stock Exchange, with Tesco down 1 per cent. J Sainsbury was up 0.4 per cent.
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Melanie Smith, Ocado Retail’s chief executive, said the value of the average basket and “shape of the week continue to normalise as we return towards the rhythm of our pre-Covid lives”.
The average basket size was down 15 per cent to an average of £124, reflecting the easing of pandemic restrictions, which were in place during its comparative quarter a year ago, and the return to more office working.
It offset the increase in the number of customer transactions in the quarter. Average orders per week rose 11.6 per cent to 367,500 as active customer numbers grew 31 per cent to 835,000, despite the impact of labour shortages early in the quarter restricting the addition of new slots.
The company said that the industry faced “significant” increases in the price of raw materials, energy, utilities and dry ice through the quarter. Food prices increased 4.3 per cent in February, according to industry data, the fastest rate of increase since 2013, against which the overall grocery market is 4 per cent lower in the first quarter.
Ocado Retail said that it had “moved certain retail prices, where costs could not be mitigated, in line with the rest of the market”.
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Tim Steiner, co-founder of Ocado, said that there had been very little trading-down to lower-priced items by customers and the decline in average basket size largely reflected customers gradually returning to pre-Covid behaviour and the addition of new customers, who initially tend to have smaller baskets than longer-term customers.
“People are still working from home several days of the week, those that were able to work from home, and we think that is a basket booster,” he said. “That is getting offset at the moment by a bit of euphoria that we’re all allowed out and we can go to a restaurant.”
Despite the headwinds, the company is confident that its long-term growth is supported by “quality customer service and high customer satisfaction” and investment in new “hyper-efficient” automated customer fulfilment centres, including in Bicester, Oxfordshire, which is due to open this year and add will 30,000 orders per week at maximum capacity.
