Following today’s release of Ocado’s figures for 13 weeks to 26 February FY2022/23; Joe Dawson, retail analyst at GlobalData, a leading data and analytics company, offers his view: “Following rocky results in its FY2021/22, Q1 FY2022/23 has provided some respite for Ocado and Marks & Spencer’s joint venture, as it eases away from the tough comparatives that saw the online grocer’s sales grow significantly during lockdown in early 2021. However, it continues to be hit by smaller basket sizes, with a 7.2% decrease counterbalancing the gain in average orders per week and active customers, as consumers flock to more affordable physical retailers for the bulk of their food & grocery shopping. With additional costs arising from the delivery and logistics associated with online retailing, Ocado already sits above the majority of grocers in terms of price, and an 8.3% increase in the average selling price of its products, while lower than the current rate of food inflation, reflects the difficulty of protecting customers against further price rises. As food inflation rose to 18.0% in February, consumers’ purchasing power has continued to weaken, reinforcing an incredibly competitive market where discounters and supermarkets have been engaged in a continuous battle to keep prices low.
“However, there may be a light at the end of the tunnel for Ocado. Inflation is forecast to decline in the latter half of 2023, and with warmer weather easing the cost of energy bills for many consumers, consumer confidence should improve – although this will take time to translate into changed purchasing habits. The number of active customers increased by 13.8% to 951,000 compared to Q1 FY2021/22, signalling growth in the appeal of online food & grocery shopping, and its new Ocado Price Promise shows that the grocer is stepping in the right direction to appeal to consumers looking for convenience and low prices. The scheme will see over 10,000 products matched to Tesco’s prices, with Ocado making up the difference in vouchers if the bill is higher than the supermarket’s.
“While price matching may provide short term relief as the cost-of-living crisis rages on, it has been implemented too late in the game so will be unlikely to help maintain a long-term customer base, and Ocado must not fall into the trap of setting an expectation of lower prices for online food & grocery shopping. It will be some time before improved delivery systems allow grocers to provide the convenience of online shopping at a price competitive with physical food stores, and if Ocado is to return to profit it should not lose sight of the fact that it is fundamentally a luxury for most consumers in today’s economic climate.”
