Shares in online grocery retailer Ocado (OCDO) dipped 3% to £20.21 after the firm’s first quarter trading update for its retail joint venture with Marks & Spencer (MKS) pointed to a normalisation of growth rates over the course of this year.

The guidance, which shouldn’t have come as a surprise to anyone given the surge in online demand in the early stages of the pandemic last year, was tempered with a positive growth outlook for the second quarter and talk of ‘strong growth over the coming years’ as the firm ‘leads the charge in changing the UK grocery landscape for good’.

In the 13 weeks to the end of February – a period which included the Christmas holidays – the joint venture recorded close to a 40% increase in turnover to £599 million, driven by an increase in the average order size to £147 along with a small increase in the average number of orders per week.

For M&S shareholders, there was positive news on the performance of its products which consistently accounted for over a quarter of the average basket. Looking ahead, a higher-value product mix and inflation should mean that even if sales volumes slow, revenues are less impacted.

ADDING CAPACITY

In terms of capacity, which stymied growth last year, the Erith CFC (customer fulfilment centre) is now processing 150,000 orders a week – a third of which are Morrison slots, it should be said.

Meanwhile, the Andover CFC will re-open during the course of the year along with another standard-sized centre at Purfleet, together with the first mini-CFC in Bristol which has shorter lead times and adds another 30,000 delivery slots per week.

The firm is also looking for up to a dozen sites, primarily in London, to set up micro-CFCs so that it can roll out its ‘Ocado Zoom’ concept which offers delivery within an hour of ordering.

NEW NORMAL

Answering concerns that shoppers may revert to in-store shopping once everyone is vaccinated, chief executive Tim Steiner pointed to the ‘dramatic and permanent shift towards online grocery shopping around the world’ with many customers no longer relying on bricks and mortar stores.

‘As we progress towards a new normal for grocery retail, and the focus for the industry shifts from meeting unprecedented demand to winning in a large and growing online channel, the need for a fulfilment solution that both delights a more knowledgeable customer, and enables profitable, sustainable growth, has never been more critical,’ he added.

Ocado Solutions’ first overseas customers, Australia’s Sobeys and France’s Groupe Casino, reported ‘a very encouraging response’ to their new CFCs according to Steiner. Meanwhile, Kroger is about to open the first Ocado-supplied CFC in the US in the next few weeks.

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Issue Date: 18 Mar 2021