Ocado Retail’s booming growth took a hit this week with the online grocer suffering a double-digit sales drop, as the Erith fire and the return to normal shopping patterns hit trading momentum.

The joint venture between Ocado and M&S saw a 10.6% drop in third-quarter revenues from £578.8m back to £517.5m – though it stressed it was up 54% in the comparative period of last year and remained 38% above the pre-pandemic level of 2019.

Over the first six weeks of the quarter, the business was performing in line with expectations, with revenue marginally down 1.8% as the exceptional demand of last year eased off during typically softer summer months.

However, the fire that broke out on 16 July in its Erith site caused 300,000 lost orders and cost it £35m of business, meaning revenues declined by 19% in the remaining seven weeks of the quarter.

Ocado has increased capacity at its other sites to take total capacity to just over 600,000 orders per week, and has plans to extend that to 700,000 per week by its 2023 financial year with the opening of two more sites.

However, operating losses during the second half are estimated to be around £10m due to the fire and will “adversely impact” reporting EBITDA for the current financial year.

Ocado also pointed to rising costs of labour, particularly for LGV and delivery drivers, which “may result in up to £5m of impact to full-year numbers” reflecting its efforts to hire new staff including raising hourly rates and offering signing-on bonuses.

Retail analyst Nick Bubb said the figures suggested “the recent fire at the Erith warehouse was far more disruptive than Ocado has let on”.

Analysts at Third Bridge commented: “Ocado is facing a squeeze. The big four grocers are gaining ground on home delivery whilst a new breed of on-demand food delivery start-ups also nibble at market share.”

Ocado shares have fallen from 2,086p at the start of September down to 1,769.3p and are down 6.2% since the quarterly update on Tuesday.

Elsewhere, Fever-Tree investors breathed a collective sigh of relief after the premium tonics supplier posted a strong surge in third-quarter revenues on Wednesday, despite warning the market over the impact of rising costs in July.

In the six months to 30 June, Fever-Tree posted revenues of £141.8m, representing growth of 36% and 39% at constant currency, despite continued disruption caused by Covid.

UK growth was a more modest 4% due to continued weakness in on-trade sales, but US sales were up 32% and European revenues jumped 102% due to the inclusion of its German GDP acquisition.

Fever-Tree again cited the pressure of rising costs, including UK logistics and the cost of shipping of product to the US, but stuck to its existing guidance on margins and forecasted “continued strong sales momentum”.

Analysts at Jefferies commented: “Option value around US growth opportunity should provide some support for the high multiple; however, the market will look for further signs that margins can recover from here and will not continue to drift, given the impact of higher investment and adverse geographic mix.”

Fever-Tree shares jumped back 9.9% on Wednesday to 2,350p, though they remain around 150p down on their level before the July profits warning.

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