Ocado to grow ahead of online grocery market

By Michael Stones

- Last updated on GMT

Ocado's growth will continue to outpace the online grocery market, predicted its boss
Ocado's growth will continue to outpace the online grocery market, predicted its boss

Related tags Retailing Supermarket Sainsbury's Ocado Morrisons

Online retailer Ocado will continue to grow ahead of the online grocery market, predicted its boss Tim Steiner, as it posted group sales up by 19.2% for the 12 weeks to February 22.

Gross sales reached £271.1M over the period and gross retail sales climbed by 15.2% to reach £252M, according to results posted yesterday (March 10).

While average orders per week were 18.1% up at 183,000, the average order size fell by 2.4% to £114.72.

The group’s borrowings stood at £44.7M on February 22 and the firm had cash and cash equivalents of £77.7M.

The Ocado ceo said the business had continued to grow, against a backdrop of a retail market that remained challenging and competitive. “We remain committed to improving the quality of the proposition to customers, which we believe will support further growth,”​ said Steiner.

“Notwithstanding the uncertainty that remains in the marketplace, we expect to continue growing slightly ahead of the online grocery market.”

‘Impressive sales run’

Financial analyst Conlumino praised Ocado’s “impressive sales run”​ after posting its first full-year profit last year. Its senior consultant George Scott said: “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.”

But, with the food and grocery market more competitive than ever, its commercial division will become an increasingly important means to drive profitability, he added.

“The retailer 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​ [Tesco, Asda, Sainsbury and Morrisons] continue to struggle.”

Ocado results at a glance

  • Group gross sales: £271.1M
  • Gross sales retail: £252M
  • Average orders a week: up 18.1%
  • Average order size: down 2.4%

The business’s trading relationship with Morrisons – founded on a 25-year contract with no break clause – was an important model for future profitability, said Scott.

City analyst Shore Capital agreed the results were slightly ahead of expectation and consensus – showing growth of 14.5% – and represented share gains in both the online and overall grocery channel.

‘Nothing to write home about’

But its analysts Clive Black and Darren Shirley were scathing about Steiner’s pledge to slightly outpace the online grocery market. “To our minds such a rate of expansion, from a seemingly immature and in vogue business, is nothing to write home about and certainly not the stuff of premium stock multiples, never mind stratospheric ones that Ocado enjoys,” ​they said.

The reality was Ocado no longer aspired to be a proprietary grocer as it depended upon servicing Morrisons for its growth, they said. While they did not expect any short-term changes to commercial partnerships, the analysts remained concerned about the dependency built into Ocado’s business model.

“Looking ahead, we do not expect Ocado to move any dials in UK grocery," ​said Black and Shirley, adding they remained deeply concerned about Ocado's positioning.

Shore Capital retained its ‘sell’ advice on Ocado’s stock.

Meanwhile, earlier this week the analyst offered a seven-point to-do list​ to Morrisons​ new ceo David Potts. Included on the list was advice to review the partnership with Ocado.

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