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Jam tomorrow on special offer at Ocado as online grocery firm turns in £0.5 billion loss

Stuart Lauchlan Profile picture for user slauchlan March 1, 2023
Tomorrow and tomorrow and tomorrow never comes...


It’s only a couple of years since online grocery shopping became a soaraway success during the COVID crisis. In the Vaccine Economy of today, there’s no way that this branch of retail is going away, but as we’ve seen with others in the sector, there’s a need for an omni-channel reset. 

Some will cope with new market realities better than others. Ocado this week turned in some horrific earnings numbers, the worst in its 23 years of trading. For the full year, losses are half a billion (£500.8 millon) on revenues that are essentially flat at £2.5 billion. Sales at Ocado Retail – the 50:50 joint venture with Marks & Spencer – fell 3.8 percent year-on-year to £2.2 billion.

Ocado Chairman Rick Haythornthwaite came out fighting in an attempt to defend the company’s position:

If you look at our retail business, it’s had to deal with COVID unwind, accelerated by a once-in-a-generation consumer crisis, spending crisis, and all the while having to position ourselves for future growth. And if you look at our Technology Solutions business, [it] is being asked to scale very rapidly for our partner clients to build CFCs [Customer Fulfilment Centers] in multiple geographies, to sign new contracts and all the while innovating at pace well ahead of the competition. And it’s had to achieve that in the face of incredibly challenging supply chains, high inflation and other macro pressures.

He concluded: 

The company has risen to the challenge, due in large part to the creativity and commitment of the Ocado people…we have more belief in our model than ever before.

Ok. But the balance sheet is bleeding red ink. For years and years, Ocado has been about ‘jam tomorrow’ and even now the messaging emphasis is on mid-term growth. Yes, all the macro-economic and geo-political factors cited are certainly in play. But where’s the plan to move forward?


CEO Tim Steiner is still emphatically of the ‘glass half full’ mindset: 

We now have more international CFCs than we have here in the UK. We’ve built up dedicated client support teams that are now helping our partners achieve even more from their new CFCs. We’ve had new partner wins, and we exit the year and start the new year with a strong pipeline. 

Our early adopters are taking some time to absorb their early learnings as well as new optimization from Ocado Re-imagined, the new opportunities from that. And so we have a high conviction of future growth as those clients absorb their early learnings, take advantage and look at what we can bring with Ocado Re-Imagined to future facilities. The Ocado Re-imagined benefits are now tangible and we can show a clear link between the technology R&D and our future financial returns and the financial returns of our clients, including our optimized site design.

But that investment in tech brings a high bill with it - £449 million on CFCs and technology, fulfilment development and innovation spend of £228 million.

Back to that Vaccine Economy re-balancing of the online grocery market. According to Hannah Gibson, CEO of Ocado Retail, the pre-COVID online share was around six percent, rising to 15% at the peak of the pandemic. Now it’s stabilizing at around 11%. The customer base has also changed, she argues: 

Pre-COVID, we had early adopters of online. And actually, if you look at the broader base of who’s shopping online now, we see 3/4 of households have now shopped online. And the majority of those have actually shopped online at some point in the last three months. We’ve always thought we’ve got a great opportunity to switch those from other retailers onto Ocado because of the better proposition and now there is a larger base of those individuals to go after. But actually, I think the more exciting thing is then to say, ‘Well, how do we get the proposition to be better so that we’re not just talking about switching people from other online, but also getting people to switch from offline to online?’.

Steiner pitches that Ocado is expecting an increase in new site orders this year, also benefiting from the fact that the new sites have got optimized site design and Ocado Re-imagined in them. James Matthews, CEO of Ocado Technology, says that the Re-imagined strategy is playing out and encouraging data is coming in: 

A CFC that goes live that was ordered in 2022 will go live with an expected productivity of 300 units per person hour in that building, well ahead of the already impressive 220 that we’re achieving in our pre-Re-imagined CFCs. And what’s more, that more productive CFC will be 20% smaller than it would have been pre-Re-imagined, thanks to Re-Imagined and our optimized site design. That in turn has knock on effects on reduced CapEx for our partners, reduce these costs for our partners.


But at ground level, where will new retail customers come from? If you didn’t shop online at Ocado during the pandemic, are you really likely to now?  Steiner argues: 

They may well have tried it during the pandemic. They may well have tried it now…The reason they didn’t try at Ocado during the pandemic is we shut our shops to new customers. So they clearly weren’t allowed to try it with us. We spent the first three or four weeks of the pandemic building a system to actually make sure that we could keep new customers out of the shop, in order to allow our regular loyal long-serving customers to gain access to the service, and not be muscled out by the one million plus people that were trying to get online to our site at one point in time.

So some of those people are trialing us, having trialed other services or using other services. The greatest over-indexation of where people shop before they come to us has always been Tesco’s and Sainsbury’s and Waitrose online customers, so to the extent that those services have grown, that’s actually created a good pool of potential customers for Ocado Retail.

He concludes:

I think is also important to think about [that] as online retail improves, as execution improves, as freshness improves, as the software improves, as the UX improves, as the lead time between when you need to order and when the groceries come improves, then this becomes a better proposition for more people.

More jam tomorrow then? 

My take

All told, the message from Ocado remains that everyone needs to keep the faith. Steiner pitches: 

Channel shift from bricks-and-mortar to e-commerce in grocery is now resuming from a higher base than pre-COVID, but obviously from a lower amount that was achieved in the peak of the COVID pandemic, in the new post-COVID world. 

Ocado is helping a growing number of partners globally to lead this process in their markets. We now have more CFCs internationally than in the UK for the first time ever. Our ability to innovate at pace is creating an ever more attractive solution improving the economics both for us and our partners and showing the strong link between the tech R&D and higher returns for all the relevant stakeholders. 

We have important opportunities to take our technology beyond grocery. And as we deepen our relationships with our existing partners, we’ve learned a lot about how to help them make the most of our world-leading technology and we are confident that we will see the benefits of these learnings in the next few years as we progress our mission to change the way the world shops for good.

I really, really want him to be right. I’m a habitual Ocado user and, in the main, am pleased with the service it provides. But if I were an investor in the company, my patience might be considerably strained at this point. 

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