Ocado has warned that annual sales will drop as customers trade down to value products and buy less overall amid a worsening cost-of-living crisis. The online grocer, part-owned by Marks & Spencer, reported a 2.7% rise in sales in the 13 weeks to 28 August, but the average basket value fell 6% to £116.
Chief executive Tim Steiner said customers are reducing basket sizes and switching to cheaper products, such as from steak to mince or from branded to own-label items. He noted that basket sizes have returned to pre-pandemic levels despite more people working from home, which would normally boost online grocery shopping.
Ocado now expects a small sales decline in 2022 and close to break-even earnings, compared with analysts' forecasts of 5% sales growth and £48m underlying profit. Shares fell nearly 15%, making Ocado the FTSE 100's biggest faller.
The company has expanded its cheaper own-label range to 750 products and increased promotions, such as £20 off for new customers. However, higher costs from energy and dry ice are expected to weigh on profits. Electricity costs have tripled, fuel costs are up 15%, and dry ice prices have surged from £200 to £4,000 per kg due to plant closures.
Ocado has built new warehouses, including the Bicester centre, capable of fulfilling 600,000 orders a week, but currently receives 374,000 orders weekly, contrasting with pandemic-era demand. The company also provides technology for overseas retailers.
