Ocado returns to earnings growth thanks to price hikes and growing customer numbers

Ocado Retail is on track to return to positive earnings for the 2023 financial year after higher selling prices and growing customer numbers offset shrinking average order sizes.

The 50:50 joint venture between Ocado Group and Marks & Spencer saw revenues jump 10.9 per cent in the 13 weeks to 26 November, reflecting a fourth consecutive period of quarter-on-quarter growth and up from 7.2 per cent in the third quarter.

Average selling prices rose 5.4 per cent year-on-year, while Ocado also benefited from a 5.9 per cent rise in active customers to 998,000, a 4.8 per cent increase in volumes, or number of items sold, and a 3.8 per cent rise in average basket value.

But its average basket size by number of items fell 1.6 per cent to 43.8.

Ocado investors and M&S cheer joint venture’s return to earnings growth 

The return to earnings growth will be welcomed by investors after Ocado Retail slipped to a £4million loss in the previous financial year.  

Ocado Shares were up by around 5.7 per cent to 656.4p in early trading. They are down by around 20 per cent over the last 12 months. 

Ocado’s average selling price was lower than the inflation rate for the quarter, which the group said reflects focus on ‘improving pricing relative to the market’.

Looking ahead, it said revenue growth is likely to be impacted by lower growth in average selling price as Ocado Retail ‘invests in value and as food price inflation continues to subside’. 

Grocery prices were up 6.7 per cent year-on-year in December, the lowest level since April 2022 and down from a peak of 17.1 per cent in February. 

UK grocers are also focusing on promotional pricing offers as the country’s traditional retailers attempt to defend market share from German discounters Lidl and Aldi.

Hannah Gibson, Ocado Retail’s chief executive, said: ‘Over the next 12 – 18 months, we will be embedding the foundations we have laid this year and raising the bar again for online grocery shopping. We have a really strong platform to build on in 2024.’

The joint venture added: ‘Our trading performance, and our focus on costs, has translated through to our bottom line, returning to positive EBITDA for the full year.’

For the new 2023/24 year, the joint venture forecast revenue growth in the ‘mid-high single digits’. 

M&S joint venture  in focus 

The group also reported that Ocado Retail hit its highest ever level of sales over the peak Christmas trading period, jumping 7 per cent between 20 to 24 December.

Other grocers have reported similar feats after shoppers spent a record £13.7 billion on their Christmas groceries, according to Kantar data.

But the closely watched figures showed Ocado retail was the worst performer.

It stands in stark contrast to M&S, which won the festive crown after sales skyrocketed over the Christmas period. 

In November, M&S said that the potential of its joint venture with Ocado Retail would not be realised for at least another three years.

Sam Machin, M&S CEO, said: ‘We’re very positive about the potential of Ocado (Retail) but to be quite frank… that potential is going to be realised in three plus years, not in the next 12 months or 24.’ 

But Archie Norman, the M&S chairman, has said he is ‘not happy’ with the joint venture’s performance and said there was ‘work to do’ to improve the loss-making partnership.

The deal, struck in 2019 and worth as much as £750million, replaced a previous tie-up between Ocado and Waitrose. 

M&S reportedly added nearly 600 products to Ocado’s website before Christmas.

Emma-Lou Montgomery, associate director at Fidelity International, said: ‘Ocado now stocks around 90 per cent of the full Marks & Spencer range and its ability to deliver 99 per cent of items ordered will have pleased shoppers on their doorsteps. 

‘But the big question is still whether Ocado is delivering what it needs in order to woo Britain’s cost-conscious consumers – that ‘mid-high single digit’ overall revenue growth forecast suggests Ocado Retail knows they may not.’

Ocado has two business areas; Ocado Retail and Ocado Solutions, which partners with retailers trying to streamline their own delivery services with Ocado’s tech.

This post first appeared on Dailymail.co.uk