Online grocer Ocado Retail lowers outlook as UK market softens

By James Davey

LONDON (Reuters) -British online supermarket Ocado Retail lowered its outlook for full-year sales on Thursday as it reported a fall in revenue in its latest quarter partly because of a softening in the overall grocery market.

The business, a 50:50 joint venture between Ocado Group and Marks & Spencer, said it now expected revenue growth in 2022 “closer to 10%”, having last month forecast growth in the “mid-teens”.

It also warned that core earnings margins may be hit by the soaring cost of energy.

Shares in Ocado were down 7.5% at 1020 GMT, while M&S was down 5.6%. Market leader Tesco was down 1.1%, while Britain’s No. 2 chain Sainsbury’s was down 0.8%.

The joint venture said its caution reflected uncertainties about inflation that have increased since Russia’s invasion of Ukraine last month, the overall level of market demand and the return to pre-COVID shopping patterns.

Sales fell 5.7% year on year to 564.7 million pounds ($743.7 million) in its fiscal first quarter to Feb. 27.

The average basket size fell 15% to 124 pounds, reflecting the continued easing of pandemic restrictions and a return to more in-office working.

The reduction offset an 11.6% increase in average orders per week to 367,500, with active customers growing 31% to 835,000.

“The value of the average basket and shape of the week continue to normalise as we return towards the rhythm of our pre-COVID lives,” said Chief Executive Melanie Smith.

Chairman Tim Steiner told reporters the joint venture was so far seeing “very little” sign that customers were turning to lower priced items despite the squeeze on the cost of living.

Britain was under COVID-19 restrictions during the comparable quarter last year, prompting many more people to shop online. Sales in the quarter on a two-year basis were up 31.7%.

Ocado Retail said significant price increases in raw materials, energy, utilities and dry ice through the quarter have added further costs for the UK grocery industry.

It said it had increased some retail prices, where higher costs could not be mitigated, in line with the rest of the market and would continue to monitor the market.

Industry data published earlier this month showed British grocery inflation hit 4.3% in February, the fastest rate of increase since 2013.

($1 = 0.7594 pounds)

(Reporting by James Davey; Editing by Kate Holton and Emelia Sithole-Matarise)