Ocado warns on profits as cash-strapped shoppers cut back spending

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Ocado has reported an uplift in third-quarter sales and customer numbers, but says inflationary pressures have reduced its average basket size as shoppers prioritise value for money.

Ocado vans

Ocado said the value of its average basket declined 6% during the period to £116

Ocado recorded a 2.7% uplift in sales year on year to £532m in the 13 weeks to August 28, which the etailer hailed as “a significant improvement” on its sales the previous quarter.

The online grocer’s active customer numbers increased 23% during the quarter to 946,000, which in turn led to a 10.7% rise in average orders per week to 374,000.

But Ocado said the value of its average basket declined 6% during the period to £116, driven by shoppers seeking “value-for-money items as they respond to inflationary pressures”.

The retailer, which appointed Hannah Gibson as its new retail chief executive last week, said it recorded a greater decline in its average basket size later in the quarter, during the peak summer holiday season.

Ocado said its average selling price has increased by 5% year on year, with a net inflationary increase of 7% in food prices offset by a 2% decline as shoppers bought lower-priced alternative products.

The online grocer said that “the accelerating trading down and smaller baskets, particularly over the past few weeks, mean that we now expect to see a small sales decline in FY22 and close to break-even EBITDA”.

Ocado also said that the cost of electricity had risen threefold year on year and that fuel costs for the year were expected to be around 15% higher, which would represent between £20m and £25m in added costs to its financial year, while a spike in the cost of dry ice would potentially add a further £20m to its annualised costs.

The etailer said it was exploring alternatives to dry ice, but that these impacts “are expected to further weigh on profitability in the fourth quarter”.

Ocado Retail chair Tim Steiner said: “We remain focussed on providing Ocado Retail customers with the best possible value to help them navigate the cost-of-living crisis, and are encouraged by the positive underlying trends in the business which underline the value of Ocado’s differentiated proposition to customers.

“As consumer spending stabilises, we expect Ocado Retail will again deliver attractive and accelerating growth in sales and a strong recovery in profitability.

“For all these reasons, we are optimistic for the future even while recognising the challenges that higher energy bills and other inflationary pressures are creating for our customers today.”