Ocado warns of sales fall as shoppers cut back in living costs crisis | Ocado

Ocado has warned that annual sales will drop because customers are trading down to value products and buying less overall amid a worsening cost-of-living crisis.

The online grocer, which is owned partly by Marks & Spencer, said sales rose 2.7% from a year ago in the 13 weeks to 28 August, an improvement from the drop in the previous quarter.

However, faced with soaring energy bills and higher food prices, shoppers are putting less in their baskets and looking for cheaper products. The value of the average basket fell 6%, from £123 to £116.

“Despite positive customer growth, the accelerating trading down and smaller baskets, particularly over the last few weeks, mean that we now expect to see a small sales decline in 2022 and close to break-even Ebitda [earnings before interest, tax, depreciation and amortisation]Ocado said.

Shares fell 12% after the update on Tuesday morning, making Ocado the FTSE 100’s biggest faller.

In May, Ocado warned that its sales growth would be less than half the rate it had hoped for as the cost-of-living crisis, coupled with a return to office work and dining out, hit trade. The picture has deteriorated further since then.

The company has expanded its cheaper own-label range of 750 products by 75 items. Its average selling price has increased by 5% year on year, which is made up of a 7% inflationary increase in food prices offset by a 2% decline related to customers choosing lower-priced alternative products.

Ocado said higher costs, mainly from energy and dry ice, would weigh on profits in its fourth quarter. The cost of electricity is about three times what it was last year, and fuel costs for the year are expected to be about 15% higher. At similar levels of use, this adds £20-25m in costs. The price of dry ice has increased sharply, which would add a further £15-20m in annualized costs, although the business is exploring alternatives to dry ice.

Ocado has built new warehouses and the Bicester center is now open, one of four new centers since early 2021 that will enable the company to fulfill 600,000 orders a week. It receives 374,000 orders a week. Ocado also provides the technology to build hi-tech warehouses for overseas retailers.

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