Ocado reviews expansion as shoppers cut back online purchase

Ocado may reconsider its timetable for expanding capacity in the UK as customers cut back on their online grocery shopping.

Tim Steiner, chief executive, said the group had already built new facilities to fill customer orders and that technological advances meant these sites could deliver more volume than initially planned.

“There will be two new [customer fulfilment centres] this year, at Bicester and Luton. We are looking beyond that to see if the current contraction merits any acceleration. We have got a lot of capacity to grow into,” Financial Times quoted Steiner as saying.

Ocado chief, however, stressed that though the company might not now accelerate its timetable for expansion, it remained committed to existing plans for new fulfilment centres.

After seeing a peak during the pandemic, Ocado reportedly has been held back by its inability to quickly increase delivery capacity at its warehouses. Additionally, the online grocery market in the UK has since contracted by around a fifth as shoppers have returned to stores.

“We are clawing back market share,” Steiner said. But he warned that lower average basket sizes — down 13 per cent to around £120 during the first half — meant Ocado Retail had to keep winning new customers to keep revenue growing. The venture expects to have close to a million customers by the end of the year, up from 867,000 at present.

Apart from the fall in grocery market share, Ocado’s profit margins are also being squeezed by steep increases in labour, energy and product costs, with electricity prices alone rising 300 percent on a year ago.

Ocado Retail’s earnings before interest, tax, depreciation and amortisation fell to £31m in the first half, from £104m last year.

Ocado’s “solutions” business in the UK, which provides technology and services to Ocado Retail and Morrisons, was also affected by the slowing market and cost pressure; earnings there were a third less than William Woods, analyst at Bernstein, had been expecting.

Ocado shares were down 2.5 per cent in midday trade but analysts were broadly relieved that there had been no further deterioration in the UK and no hitches in the rollout of customer fulfilment centres overseas.