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Ocado still posting losses as sales rise 16.6%


In its latest full-year results online grocer Ocado has reported a rise in revenue but a decline in average order size, with the business still making losses 18 months after flotation.

Gross sales for the 52 weeks ending November 27th 2011 grew 16.6 per cent year-on-year to £642.8 million and an increase in EBITDA margin from 4.3 per cent to 4.7 per cent compared to the same period last year.

Loss before tax was reduced by 80.2 per cent but still reached £2.4 million and massive investment in the building of a second customer fulfilment centre (CFC), Ocado’s distribution hubs, and an increase of capacity at its first CFC in Hatfield helped net debt jump to £19.2 million compared to the £80.5 million of net cash it had in 2010.

Tim Steiner, CEO of Ocado, said: “Against the backdrop of a weak UK economy, we have continued to see the development of the online grocery retail market.

“We believe this growth is evidence of a structural shift in consumer behaviour and we will continue to see an expansion of the online grocery retail market. We will continue to pursue our existing strategy in 2012 to improve what we offer our customers and increase our capacity to meet growing demand.”

Ocado reiterated its expectation that sales would grow by ten per cent in the first quarter of this year and should accelerate thereafter but while its is seeing improvement to trading, current performance will still be a worry to the business.

While average orders per week increased and the percentage of deliveries made on time improved during the year, average order size actually decreased year-on-year by 1.7 per cent and many still question whether Ocado can ever really compete with its bricks and mortar rivals.

A takeover had been mooted after Ocado’s share price fell to a third of its flotation level last month but the exit of the company’s Finance Director has now made any deal much less likely.

“The question marks over its business model refuse to go away,” John Ibbotson, Managing Director of retail consultancy Retail Vision, commented.

“Without the infrastructure advantages of its established supermarket rivals, it always faced a daunting challenge.

“The fact is that the cost of setting up a business like this from scratch is vast. Ocado is spending £210 million on one distribution centre in the Midlands alone. With its sales being squeezed by cut-throat competition from both Tesco and Waitrose, such punitive capital costs may one day overwhelm Ocado.”

Published on Tuesday 31 January by Editorial Assistant

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