Ocado, the world’s largest online food retailer, is set to achieve the first full-year profit in its 15 year history after reporting a sales increase of 14.8%.
The e-commerce grocer delivered a positive surge in Christmas sales as it seamlessly processed almost 40% more items for Ocado.com and Morrisons.com than over the same period last year.
On its biggest day leading up to Christmas, Ocado achieved sales of £6m, up 15% on the previous year.
However, the retailer, which floated in 2010, has had to compete with a price war from the Big Four including Tesco, which Ocado price matches. Last week, Tesco said it would slash prices across hundreds of products following Asda and Sainsbury’s decision to do the same.
John Ibbotson of the retail consultants, Retail Vision comments:
“Ocado had a decent Christmas trading period but the tinsel and glitter are now gone. Festive period aside, the fundamental problems in Ocado’s model, specifically of logistics, remain.
With the Big Four now aggressively reducing prices and margins, Ocado will have to do the same: but has it got the scale and financial strength? No is almost certainly the answer.
The deflationary environment we seem to be entering could have a devastating effect on Ocado as store-based competitors, with their lower costs, close in.
The high probability that Waitrose will elect to rescind its supply contract will further damage Ocado’s sales and margins.These Christmas numbers need to be looked at in a broader context and that context isn’t particularly encouraging.”
Duncan Tatton-Brown, Finance Director for Ocado remains buoyant.
“A bit of challenge on pricing is much easier to cope with if you’re seeing mid teen sales growth and improving cost ratios,” he said, with no expectations for Ocado’s £200m deal with Morrison to come up for renegotiation since its Chief Executive was ousted yesterday. Tatton-Brown seems optimistic about the possibility of Waitrose serving notice on the end of their partnership later this year.
“There are other alternatives and we do pay a fair amount of fees to Waitrose so we look forward to the future with confidence whatever the outcome,” he said.