Ocado on the cusp of first profitable year but must remain vigilant, says Kantar Retail

Ocado: shift in consumer behaviour

Ocado: beginning to benefit from scale

Ocado is right on the edge of having its first profitable year, as the pure-play online retailer grew its full year retail sales 15.3% to £972.4m.

Its agreement with Morrisions had a 510bp positive impact (worth £54m), pushing group revenue to just over the £1bn mark.

Commenting on the performance, Stephen Mader, retail insights director for Kantar Retail EMEA, said: “Q4 was led primarily by a strong 16.4% increase in average orders per week, paired with a modest decrease of 1.7% in average basket value. Average orders were likely driven by the strong penetration into new geographies opened up by its second fulfilment centre, while the decrease in average basket value is led by a shift towards own-label products.”

According to Mader, the story of 2014 has been one of Ocado approaching scale.

“Ocado has quite a high level of fixed costs in its investments in infrastructure as well as technology compared to its top line revenue. However, as the retailer pushes into new geographies, as well as additional non-food categories, we anticipate the additional scale will reflect well on the bottom line going into 2015.

“This is becoming visible with the profitable partnership with Morrisons, as Ocado begins to use its technology assets and excess capacity to its advantage – following a similar strategy to Amazon,” he said.

Besides the link with Morrisons, Mader said Kantar was expecting good results from the new category specialist offers of pet-focused Fetch.co.uk and household-focused Sizzle.co.uk, as shoppers appreciate the convenience of the consumables/general merchandise single basket option.

Competition in the UK supermarket industry is fierce but Ocado has done a good job of navigating the storm, carving out a loyal shopper base while competitors have been preoccupied with the discounters, said Mader.

Going into 2015, Mader advised Ocado remained vigilant about continued innovation as the competition ramps up aggressively in the e-grocery space through same-day delivery, £1 delivery slots, and click & collect services.

“Despite Tesco’s recent challenges, it is quickly closing the gap on Ocado by investing into its website and collection options to drive additional value for its online shoppers,” he said.