The online grocer, which is part-owned by Marks & Spencer, said sales rose 2.7% from a year ago in the 13 weeks to August 28, an improvement from a fall in the previous quarter. However, faced with rising energy bills and higher food prices, shoppers are putting less in their baskets and looking for cheaper products. The value of the average basket fell 6%, from £123 to £116. Tim Steiner, chief executive, said: “Customers are trading down in basket size, which also means occasionally trading down in pack size, and customers will move from some branded products to own label or move from one brand to another brand, or they will move, for example, from steak to minced meat or from fresh tuna to canned tuna.’ Steiner said basket sizes have returned to where they were before the pandemic, even as people work more days from home than in the office, which will translate into an increase in online grocery shopping. “We would expect basket sizes to be larger than they were before the pandemic, given how much more activity is being done at home,” he said. “What we’re not sure about is: we’re still in a post-Covid euphoria of eating out and going on holiday, with some of the most affluent households [spending] saved from the pandemic and therefore basket sizes will increase again to reflect more consumption from home plus more work from home? It’s hard to know right now.” Steiner declined to comment on Liz Truss’ energy support package and sweeping tax cuts, which are set to benefit the richest households twice as much as the poorest, according to the Resolution Foundation. “Despite positive customer growth, accelerating trade declines and smaller baskets, particularly in recent weeks, mean we now expect to see a small decline in sales in 2022 and close to break-even Ebitda [earnings before interest, tax, depreciation and amortisation]said Ocado. Analysts had forecast full-year sales growth of 5% and underlying profit of £48m. Shares fell 11% after the update on Tuesday morning, making Ocado the biggest faller on the FTSE 100. In May, Ocado warned that its sales growth would be less than half the rate it had hoped for, as the cost of living crisis, combined with a return to the office and eating out, hit trade. The picture has further deteriorated since then. The company has expanded its cheapest range of 750 own-label products by 75 products. Its average selling price is up 5% year-over-year, which is made up of a 7% inflationary increase in food prices offset by a 2% decline related to customers choosing lower-priced alternatives. Customer numbers increased by 23% over the 13-week period as the company ran more offers, including £20 off new customers’ first shop and free delivery. Ocado said higher costs, mainly from energy and dry ice, would weigh on profits in the fourth quarter. Electricity costs are about three times higher than last year, and fuel costs for the year are expected to be about 15% higher. At similar levels of use, this adds £20-25m to costs. The price of dry ice, which is used to transport frozen products such as ice cream, has risen dramatically, which will add an extra £15-20m to annual costs, although the business is exploring alternatives to dry ice or its dioxide coal. It is a by-product of fertilizer production. Steiner said the price had tripled from £200 to £600 during the Ukraine war, and had risen further to £4,000 a kilo more recently due to factory closures. Food and drink industry players have warned of potential carbon dioxide shortages after one of the UK’s biggest natural gas suppliers said last month that rising gas costs had forced it to halt production. Ocado has built new warehouses and the Bicester center is now open, one of four new centers from early 2021 meaning the company can fulfill 600,000 orders a week. It receives 374,000 orders a week, a stark contrast during the pandemic when it struggled to meet customer demand. Ocado also provides the technology to build high-tech warehouses for overseas retailers.
