Amazon’s recent takeover of upmarket grocery chain Whole Foods is being viewed as a “positive catalyst” for online grocer Ocado, as it posted lower half-year profits.
Ocado said pre-tax profits tumbled 18.1 per cent on a 26-week comparable basis to £7.7 million in the six months to May 28, thanks to a 12.5 per cent rise in revenues being chipped away by the costs of opening a new distribution centre in Andover and further further investment in its platform.
Meanwhile, half-year retail revenues increased from £586.2 million to £659.6 million in that same 26-week period, while underlying earnings increased 2.7 per cent to £45.2 million.
In addition, Ocado said there has been a “return of modest inflation” after years of falling food prices, although it warned the market remained competitive despite pressure from the Brexit-hit pound.
However, its average basket size still fell 1.4 per cent to £108.45 as customers bought fewer items and preferring to shop more frequently.
“After several years of price deflation in the UK, we have seen this begin to ease in the period and, when combined with our increasing scale and operational efficiencies, this trend will support the continued profitable growth of our retail business,” chief executive Tim Steiner said.
The UK-based online retailer, which recently struck its long-awaited first international deal, said Amazon’s $13.7 billion (£10.6 billion) takeover of Whole Foods would help it secure further overseas partnerships.
The Whole Foods takeover buoyed Ocado last month as its shares skyrocketed due to speculation it could increase the chances of Amazon and Ocado working together in the future.
“We continue to progress conversations with multiple retailers internationally to use the Ocado Smart Platform and believe that recent industry developments such as the announced acquisition of Whole Foods by Amazon will be a positive catalyst in advancing these discussions,” Steiner said.
He added that the recent agreement signed with a regional European retailer would be the “first of many”.
“Grocery retailing is changing and we are ideally positioned to enable other retailers to achieve their online aspirations,” Steiner said.
Ocado had been under pressure over its delay in striking an overseas deal, missing a self-imposed deadline of the end of 2015 that led to investors growing sceptical over its strategy.
However, its stock bounced back after it announced a partnership in early June.
Ocado already has partnerships with Waitrose, Morrisons, and Dobbies Garden Centres.