Ocado hit by labour shortages but insists it is holding down prices

Labour shortages, in particular of HGV drivers, have held back growth at Ocado, but the online supermarket said it had managed to keep price rises lower than the 3.8% level of grocery price inflation reported last week.

It made total sales of £2.5bn last year, up 7.2% on 2020, as more people shopped online. Ocado Retail, the joint-venture it runs with Marks & Spencer, contributed £2.3bn in sales, up 4.6%. Customer numbers increased by 22% to 832,000, driving a near-12% increase in orders, although this was partly offset by a 5.8% reduction in average basket size to £129.

Ocado’s pretax loss widened to nearly £177m from £52m, reflecting higher investment in its automated warehouses and the solutions division that sells its technology to other retailers.

The sales growth was weaker than that of rivals such as Sainsbury’s and Ocado’s share price fell more than 11% to £12.49 in early trading on Tuesday.

The company said order growth had been restricted by worker shortages in the second half, coupled with a warehouse fire caused by a robot collision in Erith in south-east London. Drops made by each van a week dropped to 177 last year from 184 in 2020. However, labour shortages are easing, and its vacancy rate has dropped from 8% in October to 3.5%.

Tim Steiner, the chief executive, said: “The past year has further reinforced that demand for online grocery is here to stay.” Online sales make up 12% of the total UK grocery market, and the research firm GlobalData expects the online share to increase to 18% by 2025.

As the cost of living crisis continues to worsen, with food and energy bills soaring, Steiner indicated that price rises at Ocado had been lower than the 3.8% grocery price inflation reported by the market data firm Kantar last week.

The company uses vast warehouses, with robots crisscrossing a giant chessboard-style grid layout to sort its orders. Ocado opened five new big warehouses globally last year for itself and partners including the US retailer Kroger, including its first two in the US, and has 13 that are operating, with a further six to open this year.

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After the opening of a Zoom micro-warehouse in Acton in west London, Ocado Retail expects to open a second Zoom site in Canning Town by the summer, followed by three others across the UK in the coming 18 months. It is competing with rapid delivery startups including Getir and Gorillas.

Late last month, Ocado’s shares enjoyed a bump after it unveiled robots that are 80% lighter than the previous ones, along with lighter warehouse grids for them to run on.

Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, said: “Next year’s profits are expected to be lower than the market was hoping. The trouble is, Ocado’s impressive robotic grid systems and software are a fundamentally attractive product for retailers looking to boost their online footprints, but Ocado has been unable to scale as quickly as would have been ideal.”

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