Ocado shares up, grocery inflation down
The business news that matters
Shares in Ocado have risen by more than 15 per cent today after the online grocery company said that it has “made good progress” as it tries to become consistently profitable.
Ocado, which is valued at £5 billion and part of the FTSE 100, has divided investors. There are those who admire its tech and think it could revolutionise grocery shopping, and those who think the company will struggle to ever be profitable and justify its valuation after years of heavy losses.
The half-year results from Ocado today offer something for supporters and critics. The company said that pre-tax losses have widened to £289.5 million from £211.3 million last year despite revenues rising 9 per cent to £1.4 billion. However, Ocado also said that on an underlying basis it recorded a profit of £16.6 million compared to a loss of £13.6 million last year. This underlying measure strips out depreciation, amortisation and exceptional items such as £38.7 million from closing its fulfilment centre in Hatfield, Hertfordshire, and £9.1 million in legal fees from a patent battle with Scandinavian company AutoStore.
Ocado offers its own online grocery service as well as selling its tech and systems to other retailers in the US, Japan and other parts of the world. Ocado’s own service sells Marks & Spencer products as part of a partnership with the high street retailer. Ocado stores its products in warehouses that it describes as customer fulfilment centres, where robots and automated systems are used to pick orders before they are placed in vans and delivered to people’s homes. Critics claim that online grocery shopping is more efficient for a retailer if it picks orders from existing supermarkets or warehouses that also serve stores, rather than standalone fulfilment centres.
Ocado said that its partnership with M&S had been profitable on an underlying basis in the second quarter of 2023. Tim Steiner, the chief executive and co-founder of Ocado, said:
“Our operations in the UK remain an important demonstration of the potential for our international ambitions, as we seek to transform the economics of online grocery and expand into the wider automated storage and retrieval solutions market.”
Shareholders in Ocado have endured a rollercoaster ride over the last five years, as this Google Finance graph shows…
Steiner also said that the UK is “definitely over the worst” of food price inflation. This comment is supported by new data from Kantar which shows that grocery prices rose 14.9 per cent year-on-year in the four weeks to July 9, down from 16.5 per cent in the previous month and the fourth consecutive month that prices have eased. Interestingly, Kantar, which produces retail and consumer research, said more than a quarter of grocery spending in the UK - 25.2 per cent - is on promotions. It added:
One of the biggest shifts we’ve seen in this area is retailers ramping up loyalty card deals like Tesco’s Clubcard Prices and Sainsbury’s Nectar Prices. This could signal a change in focus by the grocers who had been concentrating their efforts on everyday low pricing, particularly by offering more value own-label lines.
Kantar also said that consumers are going to the supermarket less but buying more when they are there. This trend is linked to an increase in home-working since the outbreak of Covid-19, meaning people have fewer opportunities to pop into a shop on their way home from work. You can find Kantar’s research here. Below is the market share of the leading food retailers in the UK in the 12 weeks to July 9. Tesco remains dominant…
Inflation and prices will be on the agenda when Rishi Sunak meets business leaders today. The prime minister is due to meet 14 business leaders at Downing Street as part of the new Business Council. The companies attending are:
AstraZeneca
Aviva
BAE Systems
Barclays
Diageo
Google Deepmind
GSK
NatWest
Sage
Sainsbury’s
Shell
SSE
Taylor Wimpey
Vodafone
Apparently the council will “discuss ways to boost investment, innovation, and access to skills and talent”. Sunak will then host a reception for around 100 businesses to “celebrate British enterprise”. You can find the government’s announcement on this and more details here.
Ahead of the meeting Sunak said: “I look forward to hearing first-hand from business leaders about how we can break down the barriers they face and unlock new opportunities for them to thrive.” However, the Federation of Small Businesses has criticised the absence of small and medium businesses from the meeting. Meanwhile, Jeremy Hunt, the chancellor, has warned businesses that the government is “watching closely” on prices…
Other stories that matter…
1. More than 100 current and former UK staff at McDonald’s have alleged they were sexually assaulted, harassed, bullied or the victim of racism while working at its restaurants, according to a BBC investigation. Alistair Macrow, chief executive of McDonald's in the UK and Ireland, said: "Every one of the 177,000 employees in McDonald's UK deserves to work in a safe, respectful and inclusive workplace. There are clearly instances where we have fallen short and for that we deeply apologise.” BBC story here
2. The commission-free trading app Robinhood is planning to launch in the UK and is advertising new jobs on LinkedIn, The Telegraph reports. Robinhood’s rival Public.com announced its launch in the UK last week. Robinhood scrapped previous plans to launch its app in the UK in 2020, with the company saying it wanted to focus on its US operations. However, Robinhood is now advertising for jobs including an operations lead and regulatory expert. Telegraph story here
3. The government has started a delayed study into how HS2 could be extended to Leeds and connect with Bradford. This study was initially announced in 2021. It will be run by Network Rail and HS2 Limited and is expected to take two years to complete, meaning a final decision on whether to go-ahead will be left to the next government. Story here and government announcement here
4. Europe is stuck in a doom-loop where the ageing population values free time and social benefits over work and productivity. Plus it relies too much on imported energy and has stopped valuing innovation, according to an analysis by the Faster,Please! newsletter from America here. The UK would make more economic progress if the government accepted it is no longer a rich country, says Adrian Wooldridge in a column for Bloomberg here
5. One of the reasons that bosses have become so frustrated with staff working from home is a lack of productivity between 4pm and 6pm, according to a feature by The Wall Street Journal. Meetings and tasks are being delayed until the next day because staff are picking their children up from school or going to the gym before returning to work in the evening to finish jobs. Piece here
And finally…
The Bear earned 13 Emmy nominations last week and is a fast-paced drama that follows an award-winning chef who used to work in a Michelin-starred restaurant but returns to run the family sandwich shop in Chicago when his brother dies. The show reflects the skill and organised chaos behind running a restaurant, but it also revolves around a collection of brilliant characters. Season one is available to watch on Disney+ already and season two is available from tomorrow. I recommend checking it out. You can find The Bear here
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Best
Graham