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FTSE 100: Ocado slumps as cost of living pushes shoppers to cut back on orders

·Business Reporter, Yahoo Finance UK
·3-min read
An Ocado delivery van is seen driving in Hatfield, Britain
Ocado said that higher costs would hit its profits for the full year, as its energy bills were soaring. Photo: Matthew Childs/Reuters

Ocado (OCDO.L) fell to the bottom of the FTSE 100 (^FTSE) on Tuesday, down as much as 13% on the day, after it revealed that UK shoppers were cutting back on spending.

The online grocer, which is owned partly by Marks & Spencer (MKS.L), said the average shopping basket came in at £116 ($136) in the 13 weeks to the end of August, a 6% fall from the £123 average in the previous quarter.

It warned that annual sales would be affected as customers turned to value products and are buying less overall, thanks to the sharpest cost of living crisis in a century.

The group also said that higher costs would hit profits for the full year, as the company's energy bills were soaring, and it expects electricity costs to triple.

“We now expect to see a small sales decline in 2022 and close to break-even on earnings before interest, tax, depreciation and amortisation,” Ocado said.

The online supermarket added that it had forecast a 15% rise in fuel costs to add between £20m and £25m to its annual bill. In addition to this, the cost of dry ice, vital for chilling its products, will also add between £15m and £20m.

However, the number of orders per week increased by nearly 11% to 374,000, compared to the previous year, while a record number of new customers are now using the company. Active customer numbers rose 23% year-on-year to 946,000, it said.

Third-quarter sales rose 2.7% to £532m, and were 42% higher compared with before the COVID-19 pandemic.

Ocado also expanded its cheaper own-label range of 750 products by 75 items, and increased its average selling price by 5% year-on-year.

Read more: UK unemployment falls to lowest rate since 1974 but pay lags behind inflation

Tim Steiner, chief executive, said: “We remain focused on providing Ocado Retail customers with the best possible value to help them navigate the cost of living crisis, and are encouraged by the positive underlying trends in the business which underline the value of Ocado’s differentiated proposition to customers.”

It comes as figures last week showed the slowest growth in retail sales since the end of COVID-19 lockdowns last year.

Separately on Tuesday, Kantar data revealed that German discounter Aldi has overtaken Morrisons to become Britain's fourth-biggest supermarket group by value market share.

“The high-tech and unique offering driven by robotics and seamless delivery is one where strong growth has been long-anticipated but has yet to materialise meaningfully,” Richard Hunter, head of markets at Interactive Investor, said.

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“Even prior to this morning’s precipitous drop on the retail release, this has had the impact of confining Ocado to becoming a perennial “jam tomorrow” stock.

“Frustration has been in evidence as the pressure on solutions to display some signs of sustained growth has led to a share price decline of 58% over the last year, as compared to a gain of 5.7% for the wider FTSE 100.”

He added: “As such, the jury remains out on prospects for the time being with the market consensus still stuck at a hold, albeit a strong one.”

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