Online supermarket group Ocado Retail reported a 10.6% fall in revenue in its latest quarter, impacted by a fire at its warehouse in Erith, southeast London, in July, which disrupted operations.
Ocado Retail, a joint venture between Ocado Group and Marks & Spencer, said revenue totalled £517.5 million (€606.6 million) in its third quarter to August 29 versus £578.8 million (€678.4 million) in the same quarter last year. Revenue had grown 19.8% in its first half.
The joint venture said that over the first six weeks of the quarter it performed in line with expectations, with revenue down 1.8%, reflecting strong comparative numbers with last year when ongoing COVID-19 pandemic restrictions drove demand.
However, in the seven weeks after the July 16 fire, revenue declined by 19%.
Taking account of the benefit of increased capacity at other warehouses, Ocado Retail estimated it lost around 300,000 customer orders, or around 35 million pounds of revenue, due to the disruption.
Improving The Customer Experience
“Despite the challenges we faced in the period, I am delighted to report that Ocado Retail is performing well, improving the customer experience even further and continuing to grow the business in a post-lockdown environment," commented Tim Steiner, chairman of Ocado Retail.
"I would like to pay tribute to the efforts of all my colleagues who worked so hard to get Ocado back to business so quickly following the fire in Erith. The success of these efforts demonstrated again the resilience of Ocado and its people."
Business Disruption
Operating losses during the second half due to the business disruption, primarily lost orders, caused by the fire were estimated at around £10 million pounds as Erith ramps back up to full capacity.
Ocado Retail, which recently announced a revamp of its own-brand product range, also highlighted the rising costs of labour, particularly for delivery and truck drivers.
It said that may result in an up to £5 million hit to full-year numbers, reflecting higher hourly pay rates and signing-on bonuses.
The JV forecast 'strong' revenue growth in its 2021-22 year.
"With a market leading customer offer and technology, we are confident Ocado Retail will continue to grow market share as we help them to roll out even more capacity and we look forward to Christmas and delivering strong growth in the new financial year, with our long term outlook as compelling as ever," Steiner added.
Analyst Viewpoint
Commenting on Ocado Retail's performance, analyst Ross Hindle from Third Bridge said that while Ocado is retaining customer loyalty, "it seems many people are simply spending less on food now they are out of the house more and commuting more regularly."
"Ocado is also 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 is now aiming to increase capacity to 700,000 deliveries per week by 2022 as it looks to cement its place as the go-to online retailer.
"The M&S partnership continues to be a shining light for Ocado, with M&S products representing c.29%of the basket. While this expansion is impressive it is also margin dilutive. Ocado sells the majority of its own-label products, for which it makes a much higher margin relative to M&S goods. The experts we are speaking to believe the sweet spot for M&S products is around 25% of the Ocado basket, a point at which M&S products can still attract new customers but Ocado's bottom line remains intact."
News by Reuters, edited by ESM. For more Technology news, click here. Click subscribe to sign up to ESM: European Supermarket Magazine.
