Ocado braced for first-ever fall in grocery sales as shoppers cut back

Online supermarket Ocado Retail today (13) downgraded its full-year outlook, saying basket-size has dropped as customers are trying to navigate the cost-of-living crisis by buying fewer products and trading down to cheaper items. 

The online grocer, which is owned partly by Marks & Spencer, said sales rose 2.7 per cent from a year ago in the 13 weeks to 28 August, an improvement from the drop in the previous quarter. 

However, faced with soaring energy bills and higher food prices, shoppers are putting less in their baskets and looking for cheaper products. The company said the value of the average shopping basket dropped six percent in the third quarter, offsetting an increase in the number of active users, which rose 23 per cent to a record high of 946,000.  

“Consumers are shopping smaller baskets and seeking value-for-money items as they respond to inflationary pressures,” Ocado Retail said.  

Tim Steiner, chair of Ocado Retail, said the trading down was broad-based and included switching to smaller pack sizes, downgrading from brands to own-label and buying tinned instead of fresh products. 

Food price inflation was running below the double-digit rates reported by the Office for National Statistics and others, and that customers’ total shopping bills were increasing “in line with or below wage inflation,” he said. 

Higher costs for energy and dry ice-, which is used to preserve frozen food in transit- are likely to weigh on the company’s profits in the fourth quarter, Ocado said. 

The cost of electricity is about three times what it was last year, and fuel costs for the year are expected to be about 15 per cent higher, adding £20-25 million in costs. The price of dry ice has sharply increased, which would add a further £15-20m in annualised costs, although the business is exploring alternatives to dry ice, The Guardian reported. 

Although it has lifted food prices by seven per cent on a year earlier, the average selling price is up only five per cent because shoppers are switching to cheaper products. 

Ocado shares have slumped 63 per cent over the past 12 months as the company, which benefited from Covid lockdowns and the rise in online shopping, has struggled to maintain its momentum as pandemic curbs have eased and inflation has soared. The company, previously viewed as a premium option for affluent Britons, is now attracting more shoppers, but it is wrestling with the same pressure on pricing that is squeezed margins at mainstream grocers.