Ocado Q1 Update
Having finally hit positive full year profit for the first time in its 2014 financial year, Ocado has continued its impressive sales run.
It has been boosted by growth from both its partnership agreement with Morrisons and by increasing consumer tendencies to buy food online, in an otherwise tough grocery market where the mid-market Big Four continue to struggle.
Gross group sales £271.1m (includes benefits from Morrisons agreement)
Gross retail sales £252.0m (refers to results of Ocado.com, Fetch.co.uk and Sizzle.co.uk)
Average orders per week 183,000
Average order size £114.72
(All results for the 12 weeks to 22 Feb 2015)
The 19.2% growth in gross sales over Q1 includes sales from Ocado’s supply relationship with Morrisons. Having contributed vitally to Ocado’s full year 2014 gross profit, this is proving to be an important model for future profitability as Ocado looks to further absorb its vast warehousing costs, eying opportunities to sell its scalable smart online platform.
More significantly though, as Morrisons, as well as its Big Four counterparts struggle to reverse lost ground to the discounters as well as more premium players, Ocado’s dynamic retail sales highlights a grocery player well aligned to polarised tastes. It most likely benefitted over the Christmas period from shoppers treating themselves to a bit of added luxury, as well as from the increased importance of convenience in the last-minute shopping rush. Indeed this Q1 comes off the back some easing of growth in H2 2014.
Key to Ocado’s growth in average weekly orders is its balanced investment in positioning. It continues to boost its own-label as well as invest in a wider array of SKUs, which includes its fledgling Fetch.co.uk pets arm and its Sizzle.co.uk kitchen and dining offer.
However, a slight drop in average order size highlights the need for a hint of aution in Ocado’s outlook. It is indicative of increasing trends towards to mix & match shopping, whereby consumers are spreading their expenditure across a range of retailers as they look to optimise their budgets.
Ocado’s prospects remain strong, though its shape might be slowly changing. Its grocery positioning is certainly relevant in a polarised market and it is enjoying consistent market share gains. However, with the food & grocery market more competitive than ever, its commercial division will likely become an increasingly important means to drive profitability.
Source: Conlumino Viewpoint March 2015