Ocado plans 12 micro customer fulfilment centres rollout for one-hour deliveries

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Ocado Group PLC (LON:OCDO) announced it will set up at least 12 micro customer fulfilment (CFC) centres this year to support the rollout of its one-hour delivery service, called Ocado Zoom.

The first mini CFC has recently gone live in Bristol, allowing shorter lead times for delivery and opening up 30,000 orders per week more capacity, with ramp maturity expected in a year or less.

WATCH: Investors look beyond Ocado’s sales surge after £44m pre-tax loss

During the financial year, the joint venture with Marks & Spencer Group PLC (LON:MKS) will also open two standard-sized CFCs, while a second mini CFC is earmarked for 2022.

A year after the COVID-19 outbreak pushed people to order their groceries online, the FTSE 100 firm said the upcoming quarterly sales figures will reflect the year-on-year comparisons with periods of full lockdown as well as the normalisation of trading.

However, it still forecasts growth as consumer behaviour is migrating towards e-commerce.

The second quarter is estimated to see positive revenue growth as the online supermarket continues to ramp the Bristol CFC and restrictions on social distancing continue in the UK.

In the 13 weeks to February 28, the company’s first quarter, retail revenue surged 40% to £599mln, with average orders per week rising 2.5% to 329,000.

The average order size was £147, due to seasonal strength over the festive period and lockdowns, with M&S products accounting for over 25% of the average basket.

“As we progress towards a new normal for grocery retail, and the focus for the industry shifts from meeting unprecedented demand to winning in a large and growing online channel, the need for a fulfilment solution that both delights a more knowledgeable customer, and enables profitable, sustainable growth, has never been more critical,” said Tim Steiner, chief executive of Ocado Group and chairman of Ocado Retail.

“This is the solution that Ocado’s partners are now rolling out in many countries across the world. The first international partners to go live, Sobeys and Groupe Casino, have reported a very encouraging customer response and we look forward to the official opening of the first Customer Fulfilment Centres for our US partner Kroger in the coming weeks.”

Analysts at Hargreaves Lansdown noted that now “the hard work begins” for Ocado, while retail revenue and profits are expected to grow at a slower rate.

“With capacity being ramped up, it’s important there’s enough demand to match. Ocado and M&S’ higher-end proposition sets it apart from other online supermarket offerings, and having a unique selling point in the uber-competitive grocery market should hold the group in good stead,” they commented.

“Let’s not forget this is important for M&S too – which is in the middle of trying to rejuvenate growth. A slick food operation is a key pillar of this, while the outlook for Clothing & Home remains challenging. M&S’ involvement also means Ocado’s fortunes really rely on its Solutions business, where it charges retailers to use its state-of-the-art automated fulfilment centres.”

Shares shed 3% to 2,022p on Thursday morning.

–Adds analyst comment, shares–

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