Online retailer Ocado scrapes a profit despite slow sales

ONLINE retailer Ocado has scraped its first ever half-year profit but revealed that sales growth had slowed and more orders were delivered late as it struggled to keep up with demand.

ONLINE retailer Ocado has scraped its first ever half-year profit but revealed that sales growth had slowed and more orders were delivered late as it struggled to keep up with demand.

The grocer, which sells Waitrose products to much of the UK, made pre-tax profits of £200,000 in the 24 weeks to May 15, compared to losses of £6.7m the previous year.

It admitted that the number of orders delivered on time decreased to 92.7% from 94.9% in the period, which it blamed on capacity issues at its main distribution centre in Hatfield. Efficiency of order picking at the centre also declined.

But it said it would spend £80m in 2011 and 2012 increasing the capacity at the site and pledged its performance and efficiency would improve as the investment paid off.

Sales increased 20.8% to £296.7m, down from 24.7% in the first 12 weeks of the period.

Ocado has also announced a tie-up with French supermarket giant Carrefour, which will see it trial a range of authentic French products called Reflets de France from July 14.

It also expanded the number of its Ocado branded products by 100 to 350 in the period.

The online grocer faces stiff competition from other supermarkets’ online offers, which will be stepped up as Morrisons enters the market.

Waitrose will also go into direct competition with Ocado within the M25 from next month and recently launched its biggest ever e-commerce marketing campaign.

Although the two companies are increasingly treading on one another’s toes, they recently signed a deal that will allow Ocado to continue to sell Waitrose products for the next 10 years.

Ocado said it continued to see strong demand in recent weeks, although it is still dogged by capacity issues.

It said it was making progress in increasing its capacity and expects further profitable revenues growth for the rest of the year.

It has spent £10.4m on upgrading its systems in the half-year and intends to start increasing the amount of orders it can handle from September.

Ocado recently opened a new depot in Wimbledon to increase its coverage of the London area, while a new distribution centre in Dordon, Warwickshire, is on-track to open at the end of 2012.

Shares in Ocado slumped 11% today, making it the biggest faller in the FTSE 250 Index.

Louise Cooper, an analyst at BGC Partners, said Ocado had “missed the boat“ by not grabbing more share of the online delivery market in London before Waitrose got involved.

 

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