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Cautious optimism from Ocado

Supply chain investment continues to pay dividends for Ocado, as retail sales reach £352.4m in Q1 2016/17.

Ocado’s relentless drive for efficiency throughout the fulfilment process has enabled it to combat continued falling basket sizes (down 1.6% to £110.84), as UK consumers undertake smaller, more regular shopping missions, by having the capability to process an extra 16.7% orders per week to 252,000 – with a growing number coming from its state-of-the-art Andover fulfilment centre.

Ocado’s continued investment in robotics and automation drives costs down, which will alleviate pressure on the supply chain as the UK grocery market braces itself for inflationary headwinds in 2017. Its pioneering Ocado Smart Platform (OSP) technology enables products to be sorted by robots from a three-dimensional grid. Other lines of development include its RBO Hand 2 project using a robotic hand to delicately pick groceries, recently patented technology for robot powered stacking homes, and its Second Hands project – using humanised robots to complete jobs too dangerous or difficult for people. These schemes are indicative of Ocado’s mission to drive cost-efficiencies through technological investment, and set it apart from the online propositions at its multichannel rivals.

Despite another set of strong results, CEO Tim Steiner paints a cautionary picture of the year to come as inflationary pressures begin to bite, reflecting the weak value of the pound. With an operating margin of just 1.7% in 2015/16, Ocado cannot afford to take a hit on profitability, so will be forced to pass price rises onto the consumer.

Source: GlobalData 14 March 2017

March 2017

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