Ocado braced for first ever fall in sales as living costs hit customers

OCADO is braced for its first ever fall in annual sales as cash-strapped shoppers cut back on spending.

The online grocer, which is half-owned by Marks & Spencer, told investors it expects “a small decline” in annual sales and would be “close to break-even” this year.

The City previously forecast sales growth of 5pc and underlying profits of £48m for the year to November.

Chief executive Tim Steiner blamed the company’s problems on inflation, which is driving up Ocado’s costs and prompting customers to spend less.

“Customers are trading down in basket size,” he said. “Customers will move out of certain branded products to ownlabel or they’ll move from one brand to another brand, or they’ll move, for example, from steak to mince.”

The value of Ocado’s average basket fell by 6pc to £116 in the third quarter as customers opted for cheaper products in response to rises in the cost of living.

Shares fell 13pc to £6.89 in early trading yesterday, compared with a high of more than £28 during the pandemic when shoppers flocked to its website.

Ocado’s profits will be hit by steep increases in the price of energy and fuel, as well as dry ice, all of which will add £20m-£25m to its costs this year.

The cost of electricity has tripled in the past 12 months, Ocado said, and fuel is expected to be about 15pc higher.

The biggest pain point, however, is dry ice, which is used to transport and store chilled and frozen products. Ocado’s dry ice bill has risen about 1,000pc, jumping from roughly £2m-£3m to £20m a year, Mr Steiner said. The company is looking into alternatives.

“The other option is to put permanent freezers in your vehicle,” he said.

“The reason that’s less attractive is you have to put the freezer for August in the vehicle, and then you have to drive it around for the other 11 months of the year half empty.”

The recent surge in the price of dry ice is a result of shutdowns in the fertiliser industry and Mr Steiner said it is not expected to endure.

The chief executive said he had not seen enough detail of Liz Truss’s proposed energy support package to know what impact it would have.