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Technology

Ocado Sales Rise, But Profits Hit By 'Adverse' Weather

Online retail specialist Ocado posted revenue growth of 11.7% in the first quarter of 2018, but warned that sales had been impacted by recent adverse weather conditions in the UK.

Ocado recorded revenue of £363.4 million during the 13-week period, despite sales during the final week being hampered by the 'Beast from the East'.

The UK-based company saw average orders per week rise by 11.1%, to 280,000, compared to the same period last year, however, the average order size declined slightly, by 0.4%, to £110.45.

"We are pleased to report another quarter of strong underlying sales growth in our retail business, in line with our guidance for the year," said Tim Steiner, Ocado's chief executive.

"The reported rate of retail revenue growth over the quarter was broadly the same as in Q4 2017, as we operated at maximum capacity for most of the quarter and were impacted by the winter storms that caused widespread disruption during the final week," Steiner added.

Slowing Sales

Molly Johnson-Jones, a senior retail analyst at GlobalData, said that even taking the recent weather disruptions into account, Ocado's organic sales growth is slowing.

"Although slowing growth is to be expected with a large, consistently high-growth business in a maturing market, the reasons for it are a concern," Johnson-Jones said.

"Average order size has fallen 0.4% over the quarter, despite inflation predicted to have remained at 2.8%. As order size decreases, profitability of baskets also decreases, and as Ocado is already a low-margin business facing continuing input cost pressures, we anticipate that profitability will have fallen again this quarter," she added.

Johnson-Jones said, however, that these problems are "cyclical, rather than systemic", and that Ocado is "well placed" to take advantage of future growth, given its continued investment in fulfilment and international partnerships.

Ocado Outlook

Looking ahead, Steiner added that Ocado is continuing to make good progress on its new customer fulfilment centre in Andover, and it is on track to open its latest facility in Erith in the middle of this year.

In January, the company announced that it signed a partnership with Canadian supermarket chain Sobeys to develop an online grocery business using the Ocado Smart Platform.

This is the group's second international partnership, following a deal with France's Groupe Casino last year. Ocado has also raised £143 million to facilitate the signing of new Ocado Solutions partnerships globally.

"We remain confident that our Ocado Solutions business will be able to do further deals, with the momentum of new signings building over time," said Steiner.

Last year, Ocado posted group revenue of £1.46 billion, representing growth of 12.7%.

© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Sarah Harford. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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