Ocado losses top £500m as costs rise and online shopping slips

Annual losses at Ocado have skyrocketed as shoppers cut back on online grocery purchases and costs were driven up by inflation and technology spending.

The online supermarket reported pre-tax losses climbed from £176.9million in 2021 to £500.8million last year, more than £100million above analysts’ expectations.

Even though active customer numbers expanded by another 108,000, total sales flatlined as customers made smaller average orders in response to cost-of-living pressures. Meanwhile, higher prices only partly compensated for the loss of trade.

Spiralling: Online retailer Ocado reported pre-tax losses climbed from £176.9million in 2021 to £500.8million last year as shoppers cut back on online grocery purchases

Many Britons who had turned to Ocado during the lockdown era have also returned to buying more of their weekly shopping in stores following the loosening of coronavirus restrictions.

Consequently, revenues in its UK retail division, a joint venture between Ocado and Marks & Spencer, declined by 3.8 per cent, although they were still 40 per cent up on pre-pandemic levels.

Total turnover marginally grew thanks to the firm opening multiple new warehouses and selling its technology as part of partnerships with grocery giants like Morrisons and US-based Kroger.

But the costs of developing and rolling out its Ocado Smart Platform technology  and launching more ‘customer fulfilment centres’ (CFCs) and its first ‘Zoom’ on-demand sites caused the retailer’s losses to spiral.

Ocado has opened 17 warehouses in the past two years, including its first in Sweden, a second facility in Canada, and others in major American cities like Atlanta, Georgia; Chicago, Illinois; and Baltimore, Maryland.

Costs were further exacerbated by inflationary pressures from growing utility and fuel bills amid soaring oil and gas prices, greater marketing spending and boosting staff levels and wages.

Back in September, the Hertfordshire-based business said it was searching for alternatives to dry ice, an ingredient commonly used to chill frozen food, due to higher refrigeration costs.

Chief executive Tim Steiner admitted that Ocado had, like all other companies, been ‘tested by a combination of macro-economic and geopolitical headwinds’ over the past year.

Yet he struck a positive tone, claiming the firm had ‘more confidence in our model than ever before’ and would become cash flow positive from its existing CFCs within the next four to six years.

This failed to prevent Ocado Group shares from declining by 7.5 per cent to 577.8p on Tuesday morning, making them the biggest faller on the FTSE 350 Index. 

Over the past two years, the firm’s shares have also lost about 72 per cent of their value as the Covid-induced boom in digital grocery purchases has petered out.

Russ Mould, investment director at AJ Bell, said the results were ‘as appetising as a bucket of sick’ and that the retail arm ‘looks stuck in the mud’, adding: ‘Consumers are pulling back from doing big shops, which is problematic for Ocado.

‘It’s more cost and time efficient to fill a van with a big customer order than lots of little ones, so the shift in shopping behaviour creates a headwind.

‘Ocado has long argued that it needs to spend money to make money, but patience is wearing thin for the long-suffering shareholders.’

This post first appeared on Dailymail.co.uk