(Bloomberg) -- Ocado Group Plc said its online retail joint venture is making some progress, with volumes showing a slight recovery as shoppers hunt around for affordable food.
The 50-50 venture between Ocado and Marks & Spencer Group Plc said it recorded a return to positive volume growth in the last month of the third quarter. Average orders per week and the number of active customers also grew with revenue rising 7% from a year earlier, the company said Tuesday. Ocado’s shares gained as much as 5%.
The British company sees its future as a maker of automated warehouses for supermarkets around the world, but most of its revenue currently comes from the online grocery business it shares with M&S. Ocado Retail has been struggling to boost market share as shoppers returned to stores after the pandemic and shifted away to discount grocers Aldi and Lidl to save money.
“Value matters incredibly to customers at the moment,” Ocado Retail Chief Executive Officer Hannah Gibson said on a call with reporters. “Cost of living is a very real thing for many customers out there and so we’re continuing to expect customers to be very mindful of that.”
Ocado Retail has been cutting prices on many basic grocery items to try to remain competitive. It has started a price match with Tesco Plc, Britain’s biggest grocer, in which customers can receive money off their next online shopping order if the previous one would have been cheaper at Tesco. Earlier this month, Ocado’s latest round of price cuts included more than 300 essential items, such as bagels, chicken breasts and stain remover.
Read More: Ocado Cuts Prices Amid Food Inflation Scrutiny
Earlier this year, M&S Chairman Archie Norman said he was not happy with Ocado Retail’s performance and there was work to do to reset the online grocer’s performance.
In an effort to boost the joint venture, Ocado is continuing to “deepen” its collaboration with M&S, and the upmarket grocer will feature more in Ocado’s marketing across emails and digital adverts going forwards, said Gibson.
“We’ve been working really closely with M&S to make sure that we’ve got a greater share of products and making sure we’ve got launches live with them on time and we’re shouting about the same things at the same time,” she said. “We’ll be talking more about M&S going forwards.”
Ocado and M&S are in talks over a deferred payment still owed by M&S since setting up the joint venture. The amount owing depends on how well Ocado Retail does, and talks have centered on how much of a discount may be warranted due to the previous weaker performance.
What Bloomberg Intelligence Says:
Ocado Retail’s 3Q gain — 2.6% ahead of a very thin consensus — includes a return to volume growth, with orders per week 1.9% ahead. Higher productivity in fulfilment centers sets Ocado Retail up for more progress in 2024, yet the need to be price-competitive could keep margin low.
— Charles Allen, BI retail industry analyst
Ocado Price Focus Puts Sales on Track, Keeps Margin Low: React
Turning the UK venture around is important as it’s a demonstration of what Ocado’s warehouse technology, which the company is selling to third party retailers worldwide, can do.
Ocado has struggled lately with surplus capacity. The company is closing its oldest customer-fulfillment center in Hatfield, England and has opened a facility in nearby Luton, which it said has double the productivity.
The company reiterated guidance that it should return to marginal profit this year, helped by keeping a lid on costs and efficiency measures.
(Updates with CEO comments from 5th paragraph.)
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