Driver shortages dent sales growth at UK online grocer Ocado

(Adds dropped words in paragraph 1)

* Q4 retail sales growth slows to 11.6 pct

* Driver shortage in London, south east

* Shortage driving-up wage levels

By James Davey

LONDON, Dec (Shanghai: 600875.SS - news) 14 (Reuters) - British online grocer Ocado suffered a slow down in sales growth in its latest quarter, blaming a shortage of drivers which it said was affecting the wider industry and increasing wage costs.

Ocado, which last month secured its biggest overseas deal so far - a partnership with French supermarket group Casino - said that in parts of London and south east England it had found it much harder than anticipated to recruit enough drivers, and had had to offer higher wage rates.

About half of Ocado's total workforce of 12,000 are drivers.

"A shortage of capacity, with the lack of drivers in certain locations being the largest factor, restricted our sales growth," said Chief Executive Tim Steiner.

"While this driver shortage has now been largely resolved, there was some short term impact on average orders per week over the period."

Shares (Berlin: DI6.BE - news) in Ocado, up 29 percent so far this year, reversed early losses to be up 3.9 percent at 1021 GMT.

Partnerships with retailers overseas are seen by analysts as a key influence on the share price of Ocado, which has a UK grocery market share of 1.3 percent, according to industry data.

On Thursday, Steiner reiterated Ocado's confidence in signing more deals in the medium term. Ocado declined to comment on market speculation that U.S. giant Walmart could be interested.

Ocado, which sells products supplied by upmarket grocer Waitrose and also has its own distribution agreement with Britain's No. 4 supermarket Morrisons, said retail sales rose 11.6 percent to 373.8 million pounds ($501.6 million) in the 14 weeks to Dec. 3, its fiscal fourth quarter, having increased 13.1 percent in the previous quarter.

Average orders per week increased 11.1 percent to 280,000, versus growth of 16 percent in the previous quarter, while average order size rose 0.3 percent to 106.1 pounds.

Chief Financial Officer Duncan Tatton-Brown said the sales increase would have been "closer to 13 percent" were it not for the driver shortage.

"I don't think this is a unique problem (to Ocado)," he told Reuters. "It's pretty clear that employment levels in London and the south east of the country are pretty high and there's a lot of growth in e-commerce and delivery generally."

But not everyone was convinced by Ocado's explanation.

"Management blame the slowdown largely on a lack of drivers in certain locations but we can't see that causing such a large drop-off in orders per week growth," said Bernstein analyst Bruno Monteyne, who has an 'underperform' rating on the stock.

Prior to Thursday's update, analysts average forecast for 2016-17 core earnings was 90.6 million pounds, up from 84.3 million in 2015-16, according to a consensus compiled by Ocado.

Tatton-Brown said he did not expect "material" moves to the consensus forecast.

The Casino deal came five months after Ocado clinched a long awaited first overseas licensing deal with an unidentified European retailer, though it was for software only.

($1 = 0.7452 pounds) (Editing by Kate Holton and Mark Potter)