Ocado’s partnership with M&S generates record sales

Ocado’s boss said that customers returning to online grocery shopping following a post pandemic decline, helped the retail division of Ocado return to profitability. It also enjoyed a record-breaking Christmas.

Hannah Gibson, CEO of Ocado Retail (a joint venture between Ocado Group, Marks & Spencer) said that the shopping behavior had returned to normal since the disruption caused by the pandemic. Many households turned to online shopping, before returning to the shops in a dramatic way.

She said that after Ocado reported its highest sales level during the peak trading period, “we’re beginning to see online outpacing the growth of physical shopping again.”

Sales increased by 7 percent between December 20-24, while revenues grew by 10.9 percent to £609.4 millions in the 13-week period ending November 26. The parent company Ocado Group’s shares fell by 1p or 0.2 percent to close at 618p. Marks & Spencer shares fell by 40p or 0.1 percent to 259 1/2p.

Ocado has reported a 5.9 percent increase in active customers, to 998,000. They also reported an increase of 4.8 percent in volume — or the number of products sold — as well as a 6.3% rise in weekly average orders to 407,000. The average basket size – a key metric for online retailers – decreased by 1.6% to 43.8 products, but the value increased by 3.8% to £120.62.

Ocado Retail reported that this was the fourth consecutive quarter of growth. This is a “significant increase” compared to the 7.2% rise in revenue reported in the third-quarter.

Gibson stated that this Christmas customers are “really enjoying themselves”, with more people in the home for Christmas dinner, Christmas lunch, and parties.

The joint venture said its focus on cost-cutting, including closing its Hatfield warehouse in north London, and its performance had “translated” to its bottom line and it is now profitable. The company’s profits won’t be revealed until Ocado Group releases its trading update next month.

Ocado’s performance improved after it suffered a £4 million loss in the year 2021/22 as consumers bought fewer items online due to the rising cost of living. Ocado Group posted a £500 million loss.

Gibson stated that the retailer took action to add more M&S and improve the overall shopping experiences, which has paid off. She said: “One year back, I laid out our plans for Ocado’s growth and profitability to improve customer experience and make sure that our operating model is at its best.” “I am happy to report that we have made real, sustainable progress over the past 12 months.”

Over the course of the year, the revenue for the group grew by 7% to £2.4 billion. The retailer stated that the price match with Tesco, where thousands of products were reduced in price, since March had also increased consumer spending.

Ocado Retail is confident in its ability to continue the positive momentum it has been experiencing over the past year and grow sales volumes faster than the market. It warned that lower average selling prices would likely affect revenue growth. The overall revenue growth is expected to hover in the high single digits for this year.

Clive Black of Shore Capital said that Ocado Retail’s revenue growth represented a “welcome step-up in trading momentum” after years of favourable and weak comparatives. Ocado Group “remains an organization that has a lot to prove”, said Clive Black, of the broker Shore Capital.