Ocado has reported a 52 per cent rise in quarterly sales in its online supermarket and expects the venture’s profits to grow this year, but the grocery delivery group reiterated a warning that significant capacity increases would not come through until 2021.
The rise in revenue at Ocado Retail, a joint venture between Ocado and Marks and Spencer, to £587m in the three months to the end of August was largely driven by bigger basket sizes. The average shopper spent £141 in each transaction, down from peaks reported earlier this year but well ahead of pre-Covid-19 levels of just over £100. The group also benefited from soft comparative figures for the same period a year earlier.
However orders per week averaged 345,000, only 9.6 per cent higher than the same period last year. Traditional supermarkets, which pick orders from stores rather than automated warehouses, have been able to increase capacity much more quickly in response to the pandemic. Tesco is now dispatching more than 1m orders a week, up from about 600,000 at the start of the year.
Duncan Tatton-Brown, chief financial officer, said Ocado’s capacity would not rise meaningfully until next year.
“We are operating at maximum capacity every day and every week . . . it is nigh on impossible to do anything substantial [to increase it] this side of Christmas,” he told reporters on a conference call.
Ocado will open new warehouses in Bristol, Essex and Hampshire next year, although the latter site merely replaces a unit destroyed by fire in 2019. But it must also return some capacity at one of its existing sites to rival grocer Wm Morrison.
Although the company’s moratorium on signing up new customers had ended, Mr Tatton-Brown added that it was “barely scratching the surface” of its waiting list of more than a million names.
Ocado argues that although existing supermarkets can add capacity quickly, doing so dilutes their profits, whereas its own profitability has improved. The joint venture with M&S expects to report full-year earnings before interest, tax, depreciation and amortisation of £40m, up from £35m last year. Most other supermarkets that have published financial guidance are expecting flat earnings in the current year.
Mr Tatton-Brown said the recent switch from Waitrose own-label products to M&S lines had gone well. Basket sizes had increased by about five items on average since the change on September 1 and the share of M&S products in each was higher than that of Waitrose.
Shares in M&S, which had halved since the start of the year, rose 3.3 per cent in early London trading. Numis analyst Simon Bowler said the better sales performance and profit guidance implied upgrades of about 7 per cent to M&S’s own forecast profits.
Ocado shares were up just over 4 per cent.