Death of weekly shopping hits hard at Ocado
THE slow death of the traditional weekly shop and a fierce supermarket price war sent shares in Ocado tumbling nearly 14pc.
The online grocery retailer yesterday warned profits were being squeezed as rivals cut prices, and despite reporting a rise in sales revealed that the change in shopping habits was starting to harm its bottom line.
On top of this Ocado already faces the threat of competition from Amazon, which recently launched its own online food delivery service. All this was enough for nervous investors, and shares fell 13.6pc, or 44p, to 278p.
Tim Steiner, chief executive of Ocado, said: ‘As the market remains very competitive, we are seeing sustained and continuing margin pressure and there is nothing to suggest that this will change in the short term.’
Ocado has struggled to post a profit since it was founded in 2002 and fiercely divides opinion on whether it is the next big thing or destined for failure.
It is loved by many of its middleclass customers, but investors have had a harder time seeing the attraction. One analyst famously quipped Ocado begins with O, ends with O, and is worth zero.
And significantly in the past few months it has suffered because of a change in the way people shop.
Customers are now topping up their grocery shop with more frequent purchases from smaller convenience stores.
Ocado misses out because it only has an online presence. And customers who do want to shop more frequently from Ocado can also hurt its margins.
Latest figures show shoppers have spent less per order, while the cost of deliveries have remained the same.
Average orders per week increased 18.9pc to 226,000 but the average order size shrank 3.4pc from £111.75 to £107.94.
This has been compounded by the price war.
Ocado has been forced to match its main rivals which are in a fight with discounters Aldi and Lidl over price. Finance director Duncan Tatton-Brown said Ocado’s policy was to follow market leader Tesco on price.
Group sales increased 15.4pc to £314m for the 12 weeks to August 7 with strong sales of frozen raw pet food.
The Nutriment Laverstoke Organic range is now selling more than 1,100 products weekly. Cold- pressed Chia seed juice has also been a star product.
Analysts had forecast full-year earnings of about £88m up from £81.5m in 2015. But yesterday Numis cut its forecast to £85.1m. They see winning international agreements with retailers in North America and western Europe as key to proving the business has growth potential.
The online grocer has also been dragged down by a failed promise to secure a deal with an international grocer by the end of 2015. But it has still not managed to clinch an agreement with a new partner. Tatton-Brown, however, refused to be drawn on what had happened to talks with the original international grocer.
‘We are still in discussions with multiple parties but there is no immediate news,’ he announced.
Latest figures from the Office for National Statistics show rising food prices were behind a 0.6pc rise in the average cost of everyday household goods and services in the year to August.
Struggled to post a profit