Online grocer Ocado has issued an update of trading for its Fourth Quater and Full Year 2014. In the fourth quarter net sales rose by 14.9%, a slight slowdown on the full year rate, whilst Full Year 2014 revenues increased by 15.3%.
Such growth is good in a very challenging market, one where Ocado may be having to invest in gross margin, particularly if it continues to follow price-matching of Tesco and other supermarkets.
Chief executive Tim Steiner said: “We are pleased with the continued steady growth in our business against the backdrop of a more competitive grocery market. This performance reflects an increasing number of customers who value the wide range of products, keen prices and great service made possible by Ocado’s unique operating model, and further demonstrates the on-going shift to online grocery shopping. We remain committed to constantly improving the quality of the proposition to customers, which we believe will support continued growth, and although we anticipate the retail environment to remain challenging, we expect to continue growing sales slightly ahead of the online grocery market.”
Stephen Mader, Retail Insights Director for Kantar Retail EMEA said “Ocado is right on the edge of having its first profitable year as the pure-play online retailer grew its full year retail sales 15.3% to £972.4m. Its agreement with Morrisons had a 510bp (basis points) positive impact (worth £54m) for the year pushing group revenue to just over the £1bn mark.”
Q4 was led primarily by a strong 16.4% increase in average orders per week paired with a modest decrease of 1.7% in average basket value. Average orders were likely driven by the strong penetration into new geographies opened up by its second fulfilment centre, while the decrease in average basket value is led by a shift towards own-label products.
The story of 2014 has been one of Ocado approaching scale. Ocado has quite a high level of fixed costs in its investments in infrastructure as well as technology compared to its top line revenue. However, as the retailer pushes into new geographies as well as additional non-food categories, we anticipate the additional scale will reflect well on the bottom line going into 2015.This is becoming visible with the profitable partnership with Morrisons as Ocado begins to use its technology assets and excess capacity to its advantage – following a similar strategy to Amazon.
Competition in the UK supermarket industry is fierce, and Ocado has done a good job of navigating the storm, carving out a loyal shopper base while competitors have been preoccupied with the discounters. Going into 2015 Ocado must remain vigilant about continued innovation as the competition ramps up aggressively in the eGrocery space through same-day delivery, £1 delivery slots, and click & collect. Despite Tesco’s recent challenges, it is quickly closing the gap on Ocado by investing into its website and collection options to drive additional value for its online shoppers.