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Ocado revenue drops despite distribution centre successes

Ocado has spent the past six months rolling out new customer fulfilment centres and signing partners for its smart platform, but the cost-of-living crisis still sees revenue taking a hit

Grocery technology group Ocado announced the roll-out of six new customer fulfilment centres (CFC) in the first half of 2022, also bringing the number of retailers using its Ocado Smart Platform (OSP) to 11 across nine countries.

But despite the roll-out of those CFCs and global partnerships with retailers using OSP, Ocado Retail saw a year-on-year revenue drop of 8% compared with the first half of 2021, to £1.1bn in the first half of 2022. The retailer put this down to post-pandemic recovery and the cost-of-living crisis in the UK.

Labelling new CFCs, international OSP customers, financing and the new Ocado Re:Imagined project “building blocks” for the group, Tim Steiner, chief executive officer of Ocado Group, said: “The past six months has seen significant progress at Ocado Group and we have put all the building blocks in place to deliver profitable growth and strong cash flows…notwithstanding the near-term challenges for the consumer in the UK, we look forward to the future with confidence.”

Ocado has always been at the forefront of technology adoption, testing technologies such as autonomous delivery, 3D printing and robotics.

While Ocado’s retail business, which is a 50/50 joint venture with Marks & Spencer, saw revenues rise by 19.8% in the first half of 2021, this year tells a different story, with investments and consumer behaviour driving revenue down.

As well as the six CFCs the group launched in the first half of 2022, the brand also now has 16 CFCs worldwide to support recent partners of the Ocado Smart Platform, which is a managed service specific to grocery retailing. The OSP software is used in conjunction with physical technologies in purpose-built fulfilment centres.

The brand has been growing the number of partners using this service. It currently has 11 partners worldwide using the platform, eight of which are using it for online groceries.

In January 2022, the group announced its Ocado Re:Imagined project, which involves changes to its OSP technology, including new robotics, picking grid and picking site designs, which will increase supply chain efficiency. It is due for roll-out in 2023.

The group also launched a smaller automated site in Canning Town in the first half of 2022 aimed at catering to its Ocado Zoom fast grocery delivery service, which the firm claimed also “represents a significant step” in the use of its OSP to operate large volumes from a small site.

Ocado’s retail arm claimed there was a 12% year-on-year increase in customers using the brand to shop in the first half of 2022, reaching 867,000 active customers.

But the retailer said a shift in customer behaviour as a result of the lifting of Covid-19 restrictions and the UK’s current cost-of-living crisis had meant a 13% year-on-year drop in the average price of customer baskets.

A large majority of the retailer’s capital expenditure for the rest of the year, around £800m, is focused on the roll-out of CFCs, smaller sites serving Ocado Zoom and technology investment in the OSP, all of which it expects to reap rewards in the future despite costing money in the short term.

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