Ocado plummets as UK shoppers cut back and energy costs bite

Ocado is getting squeezed by Britain’s inflationary crisis, with shoppers placing smaller orders from the online grocery service as the surge in energy prices lifts its costs.

The shares dropped as much as 14 per cent in London on Tuesday morning.

The company said the value of the average shopping basket dropped 6 per cent in the third quarter. That offset 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. Although it has lifted food prices by 7 per cent on a year earlier, the average selling price is up only 5 per cent because shoppers are switching to cheaper products.

In another sign of the pressure on consumers, Aldi has become Britain’s fourth biggest supermarket, overtaking Wm Morrison. The German discounter now has 9.3 per cent of the UK’s grocery market, according to data company Kantar, with Morrison on 9.1 per cent. Ocado has 1.7 per cent, unchanged from a year ago.

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’s wrestling with the same pressure on pricing that’s squeezed margins at mainstream grocers.

Higher costs for energy and dry ice are likely to weigh on the company’s profits in the fourth quarter, Ocado said.

Concern about the higher cost of living has reached a record in the UK, with 81 per cent of adults saying they were very or somewhat worried about inflation, according to a survey by the Office for National Statistics. Higher gasoline and energy bills mean that consumers have less to shell out for groceries.

The earnings season looks likely to continue to be tough for retailers. Associated British Foods, owner of Penneys and Primark, warned last week that profit will decline next year under pressure from rising energy costs and the strengthening of the dollar.

Ocado Retail, the online grocer’s joint venture with Marks & Spencer, forecast a small sales decline in the full year after revenue rose 2.7 per cent in the third quarter, missing estimates.

Ocado had already slashed its forecast twice this year and said in July it only expects growth in the low single digits. — Bloomberg LP