Labour shortages and disruption caused by a warehouse fire have resulted in Ocado sales falling in the fourth quarter, while the online grocer said profit margins will reduce next year because it plans to invest £50 million in boosting capacity.
Last night Ocado Group also won a ruling in a patent infringement lawsuit filed by AutoStore, a Norwegian robot maker.
Ocado Retail, the group’s joint venture with Marks & Spencer, said that sales fell by 3.9 per cent in the 13 weeks to November 28 to £547.8 million, but were still 31.6 per cent higher than in 2019. Shares in Ocado rose 5.6 per cent, or 90p, to £16.81 in early trading.
The group said that its growth in orders was impacted by the conditions of a “post-lockdown UK labour market” in addition to the reduction in its capacity caused by a fire in June at its Erith warehouse. The fire resulted in £35 million of lost sales and it took until mid-November to return the depot to full productivity.
Ocado also said that it was experiencing cost inflation due to energy price increases and shortages of dry ice, which it uses to keep frozen food chilled in its vans, caused by reduced production of carbon dioxide in the UK.
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Warehouse capacity is crucial for Ocado Retail’s growth. It said that it would spend about £50 million next year with about half on extra Ocado solutions fees and the rest on marketing and measures to address labour shortages.
As a result of the investment Ocado Retail’s earnings margin will reduce next year but the group said that it expected to return to “strong mid-teens revenue growth in 2022, at the top of historic pre-Covid ranges of 10 to 15 per cent”.
Ocado plans to open two new warehouses in Bicester next year and Luton in 2023 while it will add a second site for Ocado Zoom, a service that fulfills orders in an hour, in Canning Town next year.
Melanie Smith, 48, chief executive of Ocado Retail said: “The investments we have made over the past year mean we have significant capacity for growth in 2022 and we will continue to invest in facilities, systems and people in the year ahead to deliver on our long-term growth potential.”
The group said that customer behaviours had started to normalise as people returned to the office and spent less time at home, meaning that their basket sizes reduced by 12 per cent to £118 because they needed less food. However, analysts said that the government’s new “plan B” advice to work from home could result in another boost for Ocado.
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Tim Steiner, 52, chairman of Ocado Retail and chief executive of Ocado Group, said that the group was “very encouraged by the underlying trends which are driving growth in our business. Hundreds of thousands of UK consumers have tried online grocery over the last eighteen months and the vast majority are continuing to shop online and are not going back to physical stores.”
Ocado Retail said that M&S products were now worth nearly 30 per cent of an Ocado grocery basket. There has been recent speculation that M&S could buy out the rest of the Ocado Retail venture, although it is understood there is a standstill agreement until 2024 and no talks are taking place on the matter.