Ocado profit doubt ‘casts long shadow’ as losses rise

By Michael Stones contact

- Last updated on GMT

Ocado has reported a pre-tax loss of £12.5M for the year to December 1 2013, despite boosting sales by 17.2%
Ocado has reported a pre-tax loss of £12.5M for the year to December 1 2013, despite boosting sales by 17.2%

Related tags: Online shopping, Sainsbury's, Ocado

Rising pre-tax losses at Ocado, the online grocer and logistics business, are casting “a long shadow over the firm”, according to one retail consultant, as the firm’s commercial director announces his decision to leave the firm.

Ocado revealed yesterday (February 4) a pre-tax loss of £12.5M for the year to December 1 2013, up from a loss of £0.6M in the previous year. That was despite boosting the number of its active customers by 40% to 385,000 over the period and increasing sales by 17.2%.

While the business was well aligned with the shift to online grocery shopping, George Scott, retail consultant at Conlumino, warned: “The issue of profitability once again casts a long shadow, even as Ocado’s sales continue to increase.”

‘Continuously outstrip the Big Four’

The challenge for Ocado was to continue winning share to take it past the profitability threshold. “To succeed, it needs to continuously outstrip the Big Four​ [Tesco, Sainsbury, Asda and Morrisons]. And, as the likes of Tesco and Asda seek a resurgence, Ocado will find its own comparatives harder to match.”

The analyst noted investment in capacity had helped facilitate another increase in average weekly orders, which was key “if the online grocer was to reach the critical mass required to enter the black”.

Fulfilment would be an important measure of Ocado’s core competence, said Scott. Ocado figures revealed 95.2% of orders were delivered on time or early, compared with 92.7% in the previous year. 

Meanwhile, the departure of Jason Gissing, Ocado’s commercial director and co-founder of the business, at its annual meeting on May 9 presented both a challenge and an opportunity to “start the new growth trajectory”,​ said Scott.

More time with his children

Gissing said he wanted to step down in order to spend more time with his four young children and to focus on environmental and social topics.

Tim Steiner, Ocado ceo and co-founder, said: “I have worked with Jason for 20 years. Jason has led the development of our brand, and helped shape the culture inside Ocado and the way we are perceived by our customers.”

On the trends towards rising online grocery sales, Steiner claimed the UK food retail market last year was driven by consumers’ increasing preference for shopping online. “Today, the momentum seems unstoppable and, as the market evolves, we are leading the way in delivering market-leading service, innovation, and technology to the benefit of our customers,” ​he said.

Steiner added that after announcing its long-term agreement with Morrisons, its first strategic client, Ocado had provided the retailer with intellectual property and operating services to launch its online grocery business “in a very short timeframe”.

Ocado was well placed to benefit from future strategic developments as online grocery shopping increases in popularity, he said. 

Last month, City analyst Shore Capital warned not to expect “meaningful cash flow growth anytime soon”,​ from Ocado.​ 

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