Ocado Retail's profit squeezed as 'even affluent shoppers' cut back

Hannah Gibson, who took over as chief executive of the venture in September, said there were “opportunities to reactivate customers who hadn’t previously been able to get delivery slots” and to convert some of the “huge fan base” at M&S to ecommerce.

The company’s profit performance in the 12 months ending in November 2023 will determine whether M&S has to pay about £156mn of the remaining deferred consideration, plus interest, for its half-share in the business.

Ocado told analysts it would provide an update on the expected amount payable at its full-year results at the end of February. M&S has previously said it is in talks over the outcome.

Ocado’s sales in 2022 declined 3.8 per cent to £2.2bn, the first such fall in the company’s history, as shoppers reverted to more normal behaviour following the pandemic.

The supermarket experienced much of the same money-saving behaviour that others have reported, including trading down to value lines and a shift from chilled food into frozen. It also said its prices had risen about 7.6 per cent year on year, well below the headline level of food price inflation.

Gibson said the venture “continued to see structural growth” in the market but that “we are currently operating at two-thirds of our capacity and we need to grow into that capacity over the months and years to come”.

Calling Ocado’s Q4 results "disappointing", Joe Dawson, retail analyst at GlobalData, said that Ocado’s performance in Q4 was driven by a 1.9 per cent increase in average orders per week, supported by investment in robotics in its Customer Fulfilment Centres helping to increase Ocado’s order capacity.

"Despite reporting 940,000 active customers, the retailer was unable to capitalise on increased order numbers as consumers looked to prioritise spending on staple food items while cutting back on treats, with the average basket value falling 1.3 per cent to £117, and the average number of items per basket decreasing by 8.3 per cent," Dawson said.

"Ocado’s Q4 performance was further impeded by consumers trading down, as the online retailer lacks the value reputation and flexibility with pricing to compete with the discounters.

“While the UK food & grocery market grew in 2022, driven by high inflation in the sector, the online market suffered ensuring Ocado had a tough hill to climb this year.

Ocado has continued to expand its Zoom rapid delivery grocery offer, having opened four new sites in 2022, which the retailer expects to eventually contribute £80m to annual sales, Dawson said, adding that Ocado will need to place a greater focus on value and availability to increase its market share.