# Ocado Group Q4 retail revenue of £549.4m, up 0.3%

- Link: https://www.directorstalkinterviews.com/ocado-group-q4%c2%a0retail-revenue%c2%a0of-549.4m%c2%a0up-0.3/4121098418
- Published: 2023-01-17T07:39:00+00:00
- Author: Amilia Stone

Ocado Retail Ltd, a joint venture between **[Ocado Group plc](https://www.directorstalkinterviews.com/ftse-company/ocado-group/ocdo.l)**(
LON:OCDO) and Marks & Spencer Group plc (LON:MKS), has announced its trading statement
for the 13 weeks to 27th November 2022

**Highlights**

**4Q 2022**

●     **Q4** **Retail revenue of £549.4m, up 0.3% versus the same quarter last year,
a result of:**

●     **Average orders per week (Ocado.com) of 382,000, up 1.9% year-on-year** and
reflecting 940,000 active customers^(1) at end Q4, up 12.9% year-on- year, offset
by reducing frequency in customer shopping compared with the pandemic period and
as customers respond to the cost-of-living crisis

●     **Average basket value (Ocado.com) of £117, down 1.3% year-on-year** as a 
7.6%  increase in the average selling price^(2) per basket item, the lowest price
inflation of all major supermarkets, was offset by a 8.3% fall in average items 
per basket (to 45 items) versus the same quarter last year. Alongside these two 
major factors, small moves in a combination of other items^(3) resulted in the overall
decline in basket value

●     **Moves in other line items of -0.3%,** primarily driven by a normalisation
in vouchering spend (revenue is shown net of vouchers) compared with the historic
lows of the pandemic period

**FY 2022**

●     **Full-year revenue of £2.2bn was down 3.8% from the prior year, up c. 40%
from FY19.** While average orders per week (+5.8%) were up in the year, reflecting
an increase in active customers, and full-year average selling prices have increased
by 4.4% (from £2.44 to £2.55), an unwind of pandemic shopping behaviours, accelerated
by the onset of the current cost of living crisis, resulted in lower basket volumes(-
12.1%, 6 fewer items) and declining shopping frequency, in turn driving an overall
year-on year decline in revenue

●     **Current headwinds related to inflationary costs, capacity investments to
support future growth and higher marketing costs continued to weigh on profitability;
for the full year, we expect close to break-even EBITDA, in line with guidance**

**Christmas Trading**

●     **We have started FY23 strongly with record Christmas sales, up 15% over the
five days before Christmas,** and orders up 13%, including the highest level of 
orders ever recorded in a single day (more than 72,000)

**Key financials**

|  | **13 weeks****Q4 2022** | **13 weeks****Q4 2021** | **Growth****v Q4 2021** | **3-Year****CAGR** | 
| **Retail revenue****^(4)** | **£549.****4m** | **£547.8m** | **+0.3%** | **+9.6%** | 
| **Average orders per week****^(5)** | **3****82,000** | **3****75,000** | **+1.9%** | **+5.1%** |

> **Hannah Gibson, Ocado Retail’s Chief Executive Officer, said:**
> “This year we delivered our biggest ever Christmas for our customers at Ocado.
> A huge thank you to all my colleagues for making this possible. We now have close
> to 1m active customers, our largest ever customer base and we see huge potential
> to convert those who have now trialled online shopping elsewhere to become Ocado
> customers.
> The year ahead will set us up to deliver strong sales and profit growth over the
> mid-term. In 2023 we will continue to strengthen and improve our leading customer
> proposition, including investing in value to help customers manage cost of living
> pressures, while keeping tight control of our costs. We will also be doing much
> more to unlock the potential of our partners, combining the benefits of Ocado’s
> technology with the magic of M&S products.
> While the current market environment is challenging for everyone, I am very excited
> in the future for Ocado Retail. Building on 20 years of amazing service and innovation,
> we are confident of continuing to raise the bar in online grocery and working 
> with our partners to deliver the very best experience for our growing customer
> base.”

**Strong growth in customer numbers**

As reported by Nielsen, Ocado Retail continues to grow its share of online grocery,
increasing to 12.3% by the end of the quarter, up from 11.7% in the prior year, 
as it attracts increasing numbers of customers who tried online grocery for the 
first time during COVID and who are now looking for the best customer experience
online.  As consumers continue to seek value online, the channel’s share of the 
market appears to be stabilising around 11% – versus around 6% pre-COVID – and is
expected to grow next year, according to IGD.

Ocado’s active customer base was up 12.9% year on year, to 940,000 at the year-end,
evidencing strong customer demand for the service and value offered by Ocado.

Total customer numbers have been stable during the quarter, but reflect an improving
profile.

The active customer base includes both mature customers and those just starting 
out (within the first five shops) on their Ocado journey. Our mature customer base
continued to grow in the quarter. By contrast, the absolute number of newer customers
within the active base has reduced, as we have refocused our marketing strategy 
from driving acquisition volume to prioritising the acquisition of customers more
likely to convert into the mature base.

Customers acquired in the second half of the fourth quarter are already evidencing
stronger conversion to maturity, underpinning our expectations for continued customer
growth going forward.

**Delivering value for customers**

We have beaten the market on inflation. Grocery price inflation across the 8 major
UK supermarkets was 13.9% during the quarter to end November 2022 (source: Which?
report of 7 December 2022), and the highest recorded rate for 30 years.

Ocado Retail has continued to work closely with its suppliers to deliver cost savings.
These have been reinvested in price to support our customers as they manage rising
living costs.  The same Which? study shows that prices at Ocado Retail increased
9.4%, over four percentage points lower than the overall market and the lowest of
all the major supermarkets.

As mentioned above, our own data shows average selling prices have increased by 
7.6%, after a 1.8% impact from customers trading down within the basket. The pricing
of our core range of Everyday Saver lines has remained consistent with, or below,
Ocado’s larger UK competitors.

Notwithstanding these actions taken to support our customers, the challenging consumer
environment has driven a faster normalisation from the high volume customer baskets
experienced during the pandemic. The 7.6% increase in average selling price recorded
in the period was more than offset by a reduction in the average number of items
in the basket of 8.3% year on year, from 49 items to 45 items, in line with pre-
pandemic levels. This saw the average value of a basket declining overall by 1.3%
to £117.

**The new generation of CFCs are improving** **operating costs and customer experience**

Ocado’s Customer Fulfilment Centres (“CFCs”) orders continue to grow while achieving
progressively higher rates of productivity. Average orders per week for Ocado.com
during the quarter were 382k (versus an installed capacity potential of around 600k),
equivalent to around two-thirds of installed capacity potential.

The level of capacity utilisation is expected to improve significantly during 2023
as customers and orders continue to grow.

Today, the latest generation of robotic CFCs are operating at increasingly higher
levels of productivity, with Andover and Purfleet consistently achieving over 200
units picked per labour hour within the facility (‘UPH’), and Andover achieving 
a peak of 220 UPH, compared to UPH of around 150 for our first generation CFC in
Hatfield. The newest sites also have much lower energy costs.

Going forward, with the rollout of Ocado Re:Imagined innovations, we expect Ocado
Smart Platform (‘OSP’) operated sites to see further UPH improvements to over 300.
At the same time, these innovations will enable further improvements in customer
experience, notably with increased capacity for same day deliveries.

**Update on Zoom**

In 2022, Ocado Retail expanded the reach of Zoom, its leading immediacy offering.
We have now opened 4 sites, including the opening of Leeds at the end of November.
Together, we expect these sites to represent around £80m of annual sales at maturity.

Zoom is successfully reaching new customers for Ocado Retail with more than half
of Zoom customers acquired in FY22 having never shopped on Ocado.com. Of Zoom customers
who are active Ocado customers, a high proportion of their spend on Zoom is incremental.

**2023 guidance and outlook**

We entered the New Year with strong momentum following a record Christmas.

In 2023 we will focus on our Perfect Execution programme: focusing on unbeatable
choice and reassuringly good value, and with leading service, against the background
of the cost of living crisis in the UK.

Key initiatives that we are driving include:

●    Investing in great value for our customers including better prices and promotions

●    Unbeatable choice and service to provide all the products that customers love,
improved availability and deliveries back to the kitchen table

●    Capitalising on the opportunity to leverage the M&S relationship with regards
to customer growth and our customer proposition, and

●    Driving efficiencies across our operating model, returning cost ratios as a
percentage of revenue towards pre-pandemic levels across the business, including
operations, marketing and central costs

We enter the year comparing against the larger volume basket shopping behaviours
that remained in place last year (following the pandemic) and, as such, expect that
the first half of 2023 will therefore see lower basket sizes than those of the first
half of 2022.

In the second half of 2023 we will no longer be comparing against these larger basket
sizes. This will support a return to volume growth, improved capacity utilisation
and reduced costs relative to sales. Revenue growth will also reflect the impact
of price inflation.

The shape of the year will reflect the factors described above. Though we expect
positive and improving revenue growth as we progress through the year, it is likely
that EBITDA will be negative in the first half and positive in the second half, 
reflecting trends in volume growth.

Putting this together, we expect full year revenue growth in 2023 to be in the mid-
single digits. While there remain many uncertainties, we expect ORL to deliver marginally
positive EBITDA in 2023.

The improving trajectory forecast for the second half is expected to underpin a 
strong recovery in 2024.

In the medium term,  Ocado remains confident, in the light of strong customer acquisition
and continued improvements to underlying productivity, that sales and EBITDA margin
will recover strongly. We will further build on Perfect Execution by making the 
most of the product and customer opportunities with M&S, and with the benefits of
Re: Imagined still to come. Growing customer numbers, orders and increased utilisation
of available capacity will, together, underpin a recovery to high-mid single digit
EBITDA margins.

**Alongside this release, a short video is available on the Ocado Group website**
in which CEO, Hannah Gibson, discusses recent performance, strategy, and the significant
mid-term opportunities ahead for Ocado Retail.

**Ocado Group, on behalf of the joint-venture, will be hosting an analyst conference
call at 8.00am today.** Please use participant number: +44 (0) 330 551 0200 and 
confirmation code: 1220779. A replay facility will be available through an on demand
link for 90 days following the announcement.

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