Ocado said the landscape for food retailers has changed ‘for good’ as it unveiled a big jump in sales and an extra £30million investment in technology to meet rising demand for online shopping.
The grocer-cum-tech company posted a 35 per cent rise in sales at its retail arm – the joint venture with Marks & Spencer – to £2.19billion thanks to strong demand for home deliveries during the pandemic.
That resulted in profits at the division more than trebling to £148.5million, from £40million the previous year, and helped reduce the group’s pre-tax losses to £44million, from £214.5million in 2019.
In demand: Ocado raked in £2.19bn in sales in the year to the end of November
Ocado said many customers who have tried online grocery for the first time are unlikely to revert to pre-crisis shopping habits.
People are also buying more than before, with the average basket value jumping from £106 to £137.
To meet surging demand, it is opening three new UK warehouses in Bristol, Andover and Purfleet this year, which will provide 40 per cent more capacity.
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It said it will also invest an extra £30million in its platform and hire 600 more staff in its IT division, after taking on 500 in the previous financial year.
That’s part of a total £700million it expects to pour this year into technology, rolling out automated fulfilment centres and warehouses for its supermarket clients around the world and in the UK.
Chief executive Tim Steiner said: ‘The rapid acceleration of many pre-existing trends in business and society has been a feature of the Covid-19 crisis and the dramatic channel shift in grocery is a clear example of this.
‘The landscape for food retailing is changing, for good.’
Ocado is made of two types businesses: a retail arm, which sells grocery through its website, and a ‘solutions’ division, which charges retail partners in the UK and abroad to use its automated warehouses.
Revenues for the group as a whole rose 33 per cent to £2.33billion, with earnings up 69 per cent to £73.1million.
Fees invoiced to international supermarkets such as Casino in France and Kroger in the US for providing them with their robotically operated warehouses rose more than 52 per cent to £123.9million.
But the division is still loss-making, with losses for the year rising 51 per cent to more than £83million as Ocado continues to invest heavily.
Shares in Ocado, which more than doubled last year, fell 3 per cent in morning trading and were down around 1.7 per cent to £27 towards market close on Tuesday.
Investments: Ocado expects to pour £700m this year into rolling out automated customer fulfilment centres and warehouses for its supermarket clients around the world and in the UK
Richard Hunter at Interactive Investors says Ocado somehow reminds him of Amazon, which took some time before it actually became a profitable business.
‘There is little doubt that the Solutions business is core to future growth and that its offering has huge potential for retailers around the globe in what remains a largely untapped market,’ he said.
‘At the same time, running the business at a loss due to heavy capital investment for longer term gains can also prove extremely successful and, indeed, in some ways is reminiscent of the Amazon strategy in its earlier days.’
Dan Lane, an analyst at Freetrade, said: ‘2020 was the year we got to see if Ocado’s tech could really handle the pressure. Today’s retail earnings growth figures shooting the lights out is a message we should never have been in any doubt.’
He added: ‘While the proprietary International Solutions division is still very much a drag on profits, the first sign of fees coming in will be all Ocado’s long-term investors need to see.
‘If there’s one area of the business they’re pinning their hopes on it’s this one. And while it’s been the main culprit in adding to the firm’s debt pile, it will undoubtedly turn into one of its most profitable casino prized assets.’
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