Ocado sales drop 10.6% as warehouse fire and HGV driver crisis impact margins

Ocado saw retail sales drop by over 10 per cent during the last four months as its capacity was once again impacted by a fire at one of its facilities.

Ocado saw its shares drop 6.4 per cent to lows of 1773 GBX today after reporting that a warehouse fire at its facility in Erith had cost it around £35 million in lost revenues.

In the 13 weeks to August 29 the online grocer said sales at its retail arm, which it runs in partnership with Marks & Spencer, saw sales fall 10.6 per cent to £517.5 million.

This compares with booming growth last year when Ocado’s retail sales saw 54 per cent growth, although average weekly orders edged up 1.4 per cent to 338,000.

It blamed a fire at its London fulfilment centre in July, the third in as many years, for the sales disruption costing around 300,000 orders and seeing sales decline 19 per cent in the following seven weeks.

READ MORE: Ocado’s latest warehouse fire could actually be “good news” according to analysts

According to Ocado had the fire, which has cost an additional £10 million in damages, not occurred it would have reported a sales rise of more than 50 per cent.

These external costs and capacity issues also left Ocado more vulnerable to the ongoing staffing crisis sweeping the retail industry, which Ocado said has become “an increasingly important issue”.

To tackle the recruitment crisis, Ocado said it would commit £5 million this year in order to offer sign-on bonuses for HGV drivers, which it told investors it will make up elsewhere.

Meanwhile the grocer continued to expand both its customer base and its capacity, signing up 64,000 new customers and expanding capacity to 600,000 during the period.

“The big four grocers are gaining ground on home delivery whilst a new breed of on-demand food delivery start-ups also nibble at market share,” Three Bridge’s retail sector analyst Ross Hindle said.

“Ocado is now aiming to increase capacity to 700,000 deliveries per week by 2022 as it looks to cement its place as the go-to online retailer.

“Labour constraints remain a key risk highlighted by management. Labour constraints have plagued companies like Ocado since the start of 2021 and only worsened. There have also been food shortages as farmers and processors struggle with the same issues. Our experts say the picture may deteriorate further into Christmas.”

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