Ocado surprised the market with narrowed pre-tax losses in unveiling its full-year results today. Retail Week studies what the figures indicate and discusses them with chief executive Tim Steiner.
Ironically today’s full-year results, which will have pleasantly surprised a market expecting widened losses, may have less of an impact on the etailer’s share price as some previous updates on less significant periods had. The business, constantly under City’s the microscope since it floated in 2008, is understood to be in a transitional phase which will define its future.
The opening of a second customer fulfilment centre in Dordon, Warwickshire, later this month will prove a defining moment as the retailer eases pressure on its original centre in Hatfield and distribution ‘spokes’ and chases new shoppers. “This is a significant landmark. Dordon was the purpose for us doing an IPO and allows us to grow in a way we have not been able to do in the last 12 years,” Steiner told Retail Week.
The centre, which will create 1,000 jobs in the Midlands, will gradually relieve orders to several spokes at a rate of 5,000 to 10,000 orders a week and eventually the Coventry spoke will be closed.
Conlumino analyst Matt Piner says: “Improvements in capacity have helped boost the accuracy and timing of orders, which should help improve customer loyalty in the competitive sector, leaving Ocado better placed to tap into a trend of the proportion of food spending online being set to double from 5% to 10% over the next five years.”
While a pre-tax loss of £0.6m - an improvement on £2.4m last year - will be the headline number, there were other encouraging key metrics in today’s statement.
Perhaps most significantly Ocado extended its range by more than 40% to over 28,000 products during the year, which it claims is wider than any bricks-and-mortar supermarket. The retailer will still be up against the Goliaths of Tesco and Asda’s large number of SKUs offered online it can at least claim to better its high street rivals for choice. Ocado will offer 40,000 SKUs by the end of the financial year.
An increase in the number of active customers from 298,000 to 355,000 is encouraging too. The etailer has been savvy in its attempts to gain new custom ahead of Dordon’s launch, targeting Lovefilm customers with vouchers, sponsoring Jamie Oliver’s new Youtube channel and launching a new advertising campaign on video-on-demand channels from ITV Player to 4OD.
It has homed in on shoppers accustomed to spending time online and will next need to step up attempts to draw customers away from physical stores. Steiner also cites Ocado’s Tesco price match, the Low Price Promise, as a key reason that new shoppers are being attracted.
The etailer also said 77% of orders now contain at least one Ocado own-label product, growht of which is a key priority if Ocado is to prevent itself from being left trailing in Waitrose’s wake if the John Lewis Partnership-owned grocer decides to sever its supply deal at first opportunity in 2017.
The smooth transition to dispatching orders from Dordon, as well as the launch of specialist non-food websites, will be vital for Ocado in what promises to be a landmark year.
Ocado made a significant appointment last month in hiring former Marks & Spencer executive chairman Sir Stuart Rose as chairman. Steiner said the “PLC credentials” Rose brings to the company, as well as knowledge and experience in food and general-merchandise, may win over some of the City sceptics who doubt online grocery’s profitablility. “There will be some people who will be doubters who have listened to sound bites from detractors of our company who see Stuart joining the company with his experience and have to think again about that doubt,” said Steiner.
Steiner admits competition remains “fierce” in the grocery market. Asked whether he feels sorry for under-pressure Morrisons boss Dalton Philips, Steiner says: “I do not feel sorry for Dalton - he’s a big boy and can take the pressure. The market likes to react, perhaps over-react. It’s tough to consistently outperform on like-for-likes in a market with no volume growth. That’s the Tesco thing, dramatically underperform and now like-for-likes there are doing better.”
How Ocado handles this critical turning point remains to be seen but the signs appear positive that Steiner has plenty of his usual vigorous determination to silence the doubters of both Ocado and online grocery.