Ocado under pressure as shoppers return to stores, says GlobalData

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Following today’s release of Ocado’s figures for Q3 FY2021/22; Juliet Cuell, associate retail analyst at GlobalData, a leading data and analytics company, offers her view: “Ocado’s Q3 results indicate that it is beginning to falter as COVID-19 restrictions eased and consumers returned to socialising and dining out during the period. Retail revenue was down 10.6% to £517.5m in Q3 FY2021/22, a decline of £61.3m on Q3 FY2020/21, indicative of consumers prioritising spend on leisure. It is evident that the pandemic has had a lasting impact on the way consumers shop for food & grocery, with many continuing to shop online. However, some shoppers are returning to physical stores, apparent by Ocado reporting smaller average basket sizes of £124 during the period, compared to £141 during Q3 FY2020/21. To encourage consumers to place smaller top-up shops online, Ocado should do more to promote its smart pass service which does not charge members for delivery and offers exclusive discounts on certain products for a monthly or yearly fee.

“The online grocer’s results can partially be accounted for by the fire which occurred at its CFC in Erith on 16 July. Before the fire, Ocado’s revenue was marginally down 1.8% but declined by 19.0% after the incident in the remaining seven weeks up to 29 August. While the fire only caused damage to 1% of the grid, this has had a lasting impact on Ocado’s operations with the site not able to operate at full capacity until November 2021. The online grocer also reported a £10m operating loss due to customer orders that had to be cancelled which will have a significant impact on its EBITDA for FY2021/22. The fact that the Erith CFC was able to run at a limited capacity within a few days has meant it was able to recoup some losses, but this third CFC fire should not be overlooked. Ocado should ensure additional fire safety measures are in place across all its sites to reassure its customers of no further disruption.

“Ocado has been wise to increase its capacity at its other CFCs (Hatfield and Dordon) to not only offer delivery slots to new customers while the Erith CFC runs at limited capacity, but to better compete with the rise in small, on-demand grocery start-ups, such as Gorillaz and Snappy Shopper. Getir is also gaining traction in this area and according to GlobalData Retail’s July 2021 monthly survey, 3.1% of consumers have used the start-up so far in 2021, despite it only launching in the UK in January of this year. Ocado’s CFC site in Islington was denied planning permission in June 2021 so it must ensure it increases capacity across all other CFCs to support the roll out of its Ocado Zoom service, so that it avoids playing catchup with these expanding rapid delivery services.”