Ocado losses triple as cost of robotic warehouses roll-out bites

·3-min read
A robotic arm undergoes trials at the Ocado CFC (Customer Fulfilment Centre) in Andover, Britain May 1, 2018. Picture taken May 1, 2018.  REUTERS/Peter Nicholls
A robotic arm undergoes trials at the Ocado's customer fulfilment centre in Andover, Britain. Reuters/Peter Nicholls

Online grocer Ocado (OCDO.L) saw sales grow last year as it continued to benefit from a surge in internet shopping but losses have more than tripled as investment in five new robotic warehouses held back earnings.

Ocado’s annual losses ballooned to £176.9m ($239.7m) last year despite a 7.2% increase in revenue to £2.5bn.

Customer numbers increased 22.4% to 832,000, with the number of orders rising 11.9% to 357,000 although the amount spent per basket fell 5.8% to £129.

Read more: UK's most eco-friendly supermarkets revealed

Growth in order, while positive, was constrained in the second half of the year by the ongoing tight labour market, with the online grocer struggling to find enough staff to keep up with demand.

Not having enough drivers meant that the number of customer orders delivered per van saw a reduction from 184 in 2020, when there was peak demand, to 177 last year.

The roll-out of five new robotic warehouses for its retail partners and investment in new technology held back overall group earnings, with pre-tax losses increasing from £52.3m to £176.9m in the 12 months to November 28.

Chief executive and co-founder Tim Steiner said: “The past year has further reinforced that demand for online grocery is here to stay.

“In the majority of mature markets, the fastest growing channel is online and to truly win in here food retailers need to deliver the best offer with the best economics across all customer missions.”

He added that the group’s investment in a new generation of robots will increase capacity and ability even further.

Shares in Ocado were down 12% at 1,235 pence on Tuesday morning in London.

Ocado shares have plunged 12.72% back to 1,235p on the news. Chart: Yahoo Finance UK
Ocado shares have plunged 12.72% back to 1,235p on the news. Chart: Yahoo Finance UK

Chris Beckett, head of equity research at Quilter, said: “Ocado’s 2022 guidance includes increased costs set to support long term growth and higher capital expenditure that will more than halve the £1.5bn cash balance.

“Ultimately, this is a growth stock that needs new orders to justify the valuation. This will likely come, but timing remains uncertain.”

Two weeks ago, Ocado unveiled a raft of innovations that included a faster, cheaper and lighter robotic arm and improvements to its automated dispatch system that could help reduce labour costs by 40% in the long term.

Read more: Food prices drive UK shopping costs to highest since 2012

This bet on automated technology also means 50% of customer orders can be delivered within four hours, compared to 10%

“Partners will be able to go live quicker, at lower cost, and achieve higher margins and return on capital. For Ocado Group, this means a bigger addressable market, the opportunity to win new partners more quickly, and fresh opportunities to accelerate growth,” Steiner said.

Last year Ocado opened five new distribution hubs across the globe, including two in the US for the first time. A further three have opened since the end of November, with a total of nine due to open this year – including six in the US.

Watch: How to save money on a low income