Ocado Group PLC reported sales growth for Ocado Retail Ltd in its third quarter, but warned that online shoppers are checking out with smaller baskets and seeking value-for-money items due to the cost-of-living crisis in the UK.

Ocado Retail is a joint venture between online grocer Ocado and food, clothing and homewares retailer Marks & Spencer Group PLC, with both companies holding a 50% interest.

Shares in Ocado were trading 13% lower at 692.80 pence each in London on Tuesday morning. M&S shares were down 2.8% at 123.15p.

For the 13 weeks to August 28, revenue edged up 2.7% to £531.5 million compared to a year before. This was a ‘significant’ improvement against the decline recorded in the second quarter.

Ocado also flagged ‘record numbers’ of new customers. Active customer numbers grew 23% year-on-year to 946,000 driving an 11% rise in orders per week to 374,000.

However, the average basket value was down by 6% in the period to £116 as customers sought to cut back due to inflation. A greater decline was experienced later in the quarter, it noted.

Ocado said it is working to provide better value for customers. This includes developing an own-label range and a 750 item selection of entry level priced goods.

The company warned that ‘cost headwinds’, particularly energy and dry ice, are likely to weigh on profitability in the fourth quarter in addition to smaller customer baskets.

‘Notwithstanding positive customer growth, the accelerating trading down and smaller baskets, particularly over the last few weeks, mean that we now expect to see a small sales decline in FY22 and close to break-even [earnings before interest, tax, depreciation and amortisation],’ Ocado said.

In Ocado’s half-year results, it had guided to low single-digit growth in revenue at Ocado Retail for the full-year.

Chairman Tim Steiner commented: ‘As we have seen in Q3, customer numbers are sharply up as consumers either switch from other providers or try online grocery for the first time; underlying productivity in fulfilment and the last mile continues to improve...As consumer spending stabilises, we expect Ocado Retail will again deliver attractive and accelerating growth in sales and a strong recovery in profitability.

‘We are optimistic for the future even while recognising the challenges that higher energy bills and other inflationary pressures are creating for our customers today.’

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