Ocado’s M&S products are favoured over the former Waitrose partnership products with customers, as the company enjoys a doubling of new registrations, the company’s chief executive said this morning.
“The M&S product is more popular with our customers than the Waitrose products were,” chief executive Tim Steiner said during an investor call earlier this morning.
“In terms of new registrations, we’re probably running at something like double the amount of registrations that we would have seen more than a year ago, pre-pandemic. And order volumes are up significantly at the start of Q2, from the average of Q1, as basket sizes have come down slightly and we continue to overall grow.”
The online retailer also confirmed it will be looking to expand its electric delivery fleets in London and the rest of the UK.
Ocado averaged 329,000 orders in the first quarter with an average order size of £147, but unlike other retailers, it does not expect a summer boom of returning to work, which will help maintain increased online orders.
However, that is fewer than the 360,000 orders it received weekly in the fourth quarter, Third Bridge analyst Ross Hindle pointed out.
He added that these concerns about keeping hold of customers were reflected in the share price.
The news comes after Ocado Retail said this morning that its revenue had climbed 40 per cent in the first quarter as lockdown restrictions continue to power a surge in online shopping.
The firm, a joint venture between Ocado and M&S, said that revenue was £599m in the 13 weeks up to the end of February, up from £428.8m the year before.
Ocado Retail said that this size was a combination of the traditionally indulgent festive season and the ongoing impact of lockdown.
The firm is looking to expand its electric and electric assisted delivery fleets across the UK, but has faced challenges that are less apparent in the capital.
“In terms of the long term electrification of delivery fleets in the UK, there are still some challenges around power distribution,” Steiner said.
The electrification of delivery fleets is a much harder feat in food distribution than parcel delivery, Steiner added, as more power is needed to keep food cold.
“Whilst you can trickle charge them over night, it doesn’t give you enough charge to to run two routes, so then you lose half of the capacity of the vehicle unless you can do a very fast charge in the middle.”
In London, which hosts sites in denser areas where deliveries are closer to each other, electric vans are better suited for the short distances.
With shorter travel, “it has been possible, and we have been growing our electric fleet,” Steiner said.
In the Ocado Zoom site in west London, the retailer has been trialling bicycles and electric assisted bicycles which have so far been successful.
The firm has just opened its Bristol “customer fulfilment centre”, which will give it the capacity to fulfil an extra 30,000 orders a week.
It is looking at opening two more such centres this year, each of which will be able to fulfil 150,000 orders a week, as well as 12 more micro sites.
These micro sites are central to its Ocado Zoom product, which will offer deliveries within one hour of ordering.
Ocado chief executive Tim Steiner said: “Over the last twelve months, there has been a dramatic and permanent shift towards online grocery shopping around the world. Millions of customers have experienced online grocery shopping through the pandemic and many of them will not be going back to bricks and mortar.
“As we progress towards a new normal for grocery retail, and the focus for the industry shifts from meeting unprecedented demand to winning in a large and growing online channel, the need for a fulfilment solution that both delights a more knowledgeable customer, and enables profitable, sustainable growth, has never been more critical.”
Ocado said it was expecting positive revenue growth in the second quarter versus the corresponding period last year
Analysts expect Ocado’s strong results, which echo the sustained preference for online retail, will begin to level out over the course of the year.
“Whilst there is no doubt that online shopping has become more ingrained in our everyday lives, from here like-for-like growth comparisons for the company should start to moderate,” senior investment manager at Brewin Dolphin, John Moore, said.
“In terms of outlook, the company will now come up against tough comparatives as the full effects of lockdown in 2020 will be the yardstick,” head of markets at Interactive Investor, Richard Hunter, added.
Ocado has bet on the continued popularity of online retail, but some are torn as to whether it is here to stay, as Moore warned that “the initial lockdown-related spike in activity set a high bar.”
Despite this, “Ocado is increasingly confident that the shift to online grocery shopping is permanent, with the pandemic providing a boost which rapidly brought forward what had been a slowly evolving trend,” Hunter continued.
Even if online retail does stall once restrictions are lifted, Ocado’s commitment to expanding capacity will likely balance the potential loss.
“Looking past those short-term comparisons, the company should benefit from the rewards of its investment in additional capacity and quicker, more agile customer fulfilment over the next year or so,” Moore said.