Ocado’s annual losses ballooned to £176.9m last year despite continued top-line growth as investment in technology hit earnings.
Group revenue for the 52 weeks to 28 November increased by 7.2% to £2.5bn and was 42.3% higher than in 2019 after a bumper pandemic-driven 2020.
Ocado Retail, its joint venture with Marks & Spencer, saw sales grow 4.6% to £2.3bn, up 4.6% despite “material headwinds” in its second half.
The growth was driven by an increase in customer numbers of 22.4%, to 832,000, underpinning an increase in orders of 11.9%, to 357,000, offset by a reduction in basket size of 5.8% to £129
Growth in orders, while positive, was constrained in the second half by the ongoing tight labour market in the UK, in addition to reduced capacity at the Erith CFC following a fire in July
Its international Solutions business revenues were up £50m to £66.6m versus from £16.6m with the go-live of two new CFCs for Kroger in the US and the continued ramping-up of sales through the previously opened sites for Groupe Casino (France) and Sobeys (Canada).
Total invoiced fees across all International partners were £143.0 million, an increase of 15.4% compared to the prior period.
Gross profit and other income grew strongly to £1bn, with retail gross margin up to 35.9% from 33.6%, benefiting from higher order volumes, improved product mix, changes in sourcing arrangements, and cost savings.
However, distribution and administrative costs grew by £163.1m to £976.7m as it expands both in the UK and internationally.
Distribution and administrative costs in the International segment grew by 90.8% to £177.4m as a result of increased engineering and technology.
EBITDA for the period was down to £61m from £73.1m as it reinvested much of its gross margin in technology and support functions.
Ocado’s statutory loss before tax of rose to £176.9m from £52.3m after including depreciation, amortisation and impairment charges of £240.5m, net finance costs of £42.3m and net exceptional income of £42.8m.
Tim Steiner, CEO of Ocado Group, said: “The past year has further reinforced that demand for online grocery is here to stay. In the majority of mature markets, the fastest growing channel is online and to truly win here food retailers need to deliver the best offer with the best economics across all customer missions. The innovation that is powering the development of the unique and proprietary Ocado Smart Platform is focused on providing an unequalled customer experience through ground-breaking technology which leads to an unrivalled low cost operation.
“The new generation of Ocado technology, which we have called “Ocado Re: Imagined”, represents a transformational leap forward allowing our partners to comprehensively out-compete peers online. Partners ordering CFCs today will be able to go-live quicker, at lower cost, and achieve higher margins and return on capital. For Ocado Group, this means a bigger addressable market, the opportunity to win new partners more quickly, and fresh opportunities to accelerate growth.
“Over the last twenty years Ocado Group has been a pioneer in the development of online grocery retailing. With the innovations to the Ocado Smart Platform announced in January 2022, we have again re-set the bar, demonstrating decisively that an online grocery service powered by OSP is able to offer what the customer wants with the economics the retailer needs”.
Looking forwards, Ocado expects a return to strong, mid-teens revenue growth in retail in 2022.
Its UK solutions & logistics arm is expected to see fee growth of 30% reflecting the investment in capacity, while international solutions will more than double its fee growth with increase of live international CFCs from 4 to 12.
Ocado shares have plunged 9.7% back to 1,271p on the news.
Total till sales at UK supermarkets fell 2.9% in the last four weeks ending 29th January, according to NielsenIQ.
However, this is a very modest decline, as there was 10.6% growth exactly a year ago, when the UK was in its final COVID-19 lockdown period.
According to data from NielsenIQ, whilst there were significantly fewer online shopping occasions (-14%) than last January, this was compensated by more visits to stores (+12%).
It said that UK grocery shoppers in January continued to adopt an omnichannel mindset, with the share of online sales rising to 13.1%, up from 11.3% in December. Online grocery “remains remarkably” solid against a peak of 16.1% in January 2021 and is the highest share of sales since July 2021.1
A return to normality also led to growth in the convenience channel, where sales are up 2.1% compared with the same period last year, when shoppers in lockdown opted to visit larger stores, less often, and to stock up online.
On an individual basis, Marks & Spencer was the best performer, with sales up 12.3% - ahead of discounters Lidl (+8.1%) and Aldi (+4.4).
Tesco was the best performing of the big four, with sales down 0.3%, compared to a 3.7% drop at Sainsbury’s, 4.3% at Asda and 6.9% at Morrisons.
Mike Watkins, NielsenIQ’s UK Head of Retailer and Business Insight, said: “Sales during the first weeks of January are typically some of the lowest in the year and given last year’s lockdown, we’re measuring against very high comparatives. However, our latest data shows a continued resilience in online grocery shopping and rising sales at convenience stores in recent weeks.
“Looking ahead, we expect three headwinds to shape how we shop and what we spend over the next three months. Firstly, given the increased supermarket spend during the 2021 lockdowns, total till growths will likely decline throughout Q1 before returning to growth by Easter. Secondly, shoppers now have concerns about the increasing cost of living, with nearly half of all households saying that this is their most important concern at the moment, which brings with it the risk of reigning-in some discretionary spend.
“Finally, as inflation continues to bite, shoppers will look to manage their spend on grocery shopping by shopping around, which means if they can save money this way, there are likely to be more visits but smaller basket sizes made across all channels”
Meanwhile the BRC-KMPG Retail Sales Monitor has found that sales increased by 11.9% in January, against a decline of 1.3% in January 2021.
On a two-year basis, total retail sales grew 7.5% during January compared with the same month in 2020.
UK retail sales increased 8.1% on a like-for-like basis from January 2021, when they had increased 7.1%.
Over the three months to January, food sales decreased 0.1% on a total basis and 0.5% on a like-for-like basis, which is below the 12-month total average growth of 2.4%.
For the single month of January, Food was in decline year-on-year.
Over the three-months to January, Non-Food retail sales increased by 11.1% on a total basis and by 6.5% on a like-for-like basis, while in-Store sales of Non-Food items grew 67.6% on a total basis and 54% on a like-for-like basis.
Online non-food sales decreased by 24.2% during January, compared with growth of 83% January 2021.
BRC CEO Helen Dickinson commented: “It is encouraging to see such strong sales in January, even once inflation has been accounted for. Food sales were more muted than in previous months, as people went back to eating out more often. Consumers prioritised home purchases, boosting the sale of household appliances, electronics and homeware. In what may be signs of a return to pre-pandemic trends, furniture was the stand-out performer in January, after transport delays in the Christmas period began to ease.
“Retailers and consumers face challenges in the coming months. Retailers face competition from other spending opportunities as the public flood back to restaurants, cafes and live events. Furthermore, rising inflation, driven by higher costs of production, higher energy and transport prices, as well as other looming price hikes this Spring will mean consumers will have to tighten their purse strings.”
Paul Martin, UK head of retail at KPMG, added: “Retailers will be relieved that we started the year without further lockdowns as consumer demand continued strongly on the high street with sales up 11.9% on last year. However, this unusually strong performance for January which is traditionally a slower month, should be put in the context of last year’s lockdown restrictions.
“With Covid restrictions now eased, and people heading back to workplaces, retailers will be hoping consumer confidence remains robust to help offset the rising cost challenges that they are likely to experience for a while. We could see a challenging few months ahead if wider macroeconomic conditions start to squeeze household incomes to the point that they start cutting back on retail spending.
“Retailers are facing their own inflationary pressures and will need to take tough decisions on whether and how to pass on the increase costs they have been sitting on for some time to consumers facing their own financial challenges. We could easily see the health of the sector start to deteriorate if consumers choose to sit on savings to weather the storm.”
IGD CEO Susan Barratt said of food and drink performance: “After a welcome uptick in food and drink sales at Christmas, 2022 has started on a downbeat note with sales struggling to match those of January 2021. Although it was always going to be a hard benchmark as we were in the peak of a third national lockdown in January last year, with food and drink sales surging as a result.
“With the cost of living rising at its fastest rate in 30 years, our ShopperVista insight reveals that 89% of shoppers expect food to get more expensive in the year ahead. Coupled with the energy price cap set to rise sharply from April, some 39% of shoppers expect to be worse off financially in the year ahead, up 8% from last month. Therefore, we can expect more shoppers to increasingly focus on tightening their spending in the months ahead.”
On the markets this morning, the FTSE 100 is up 0.7% to 7,610.7pts.
Risers include McBride, up 2.6% to 49.2p, PayPoint, up 1.8% to 640p and C&C Group, up 1.6% to 225p.
Along with Ocado, fallers include THG, down 3.4% to 129.1p, Just Eat Takeaway.com, down 2% to 3,480p and Marks & Spencer, down 1.2% to 195.2p.
Yesterday in the City
The FTSE 100 opened the week up 0.4% to 7,603.8pts yesterday.
Risers included Just Eat Takeaway.com, up 4.4% to 3,551.5p, Glanbia, up 3.5% to €12.58, FeverTree, up 2.7% to 2,166p, SSP Group, up 2.6% to 273.2p, Greencore, up 2.5% to 129.6p, Deliveroo, up 2.3% to 396.8p and Premier Foods, up 1.8% to 116.6p.
Fallers included THG, which dropped 1.3% to 133.6p after the speculation-driven share price boost on Friday.
Other fallers included McBride, down 4% to 48p, Marks & Spencer, down 3.1% to 197.5p, Naked Wines, down 2.8% to 471.5p and B&M European Value Retail, down 2.3% to 542.2p.
Supermarkets Sainsbury’s and Tesco fell 2.1% to 281.8p and 1.4% to 291.4p respectively.