Following today’s release of Ocado H1 figures for 2019/20,

Thomas Brereton, Retail Analyst at GlobalData, a leading data and analytics company, comments:

‘‘When viewed in isolation, Ocado’s H1 retail revenue growth figure of +27.2% makes it look like it has thrived through the crisis. COVID-19 lockdown restrictions (and a desire from consumers to avoid stores) created a fertile oasis for the online UK grocery market, and Ocado’s online-only model has been well-placed to make significant absolute gains – helped by the lack of additional complications of adapting stores (as felt by its multichannel rivals). But while the other major players will naturally focus on building and perfecting their online presences for the rest of 2020, Ocado must also integrate the supply switchover from Waitrose to M&S at the start of September – a process that may disrupt and distract from keeping pace with competitors.

When viewed in the context of the total online market, the rigidity of Ocado’s warehouse-only, automaton-led distribution model has revealed some flaws. While Ocado is admits this notable growth is pretty much as good as it’s going to get, rivals have been able to leverage their store-pick models to expand total online capacity much faster. Tesco saw +90% online grocery sales in May, and Sainsbury’s saw +136% in June – figures that are simply unachievable by Ocado due to capacity issues. With that in mind – and with the UK online grocery market expected to grow 76.2% in 2020 – Ocado will inevitably lose share of the UK online market in 2020.

There are still numerous positives for Ocado to take from this period. The retail division has scaled up rather profitably (with retail EBITDA climbing 87.3%), driving pre-tax loss down to £40.6m from a £147.4m loss in the prior H1. And, on the Solutions side of the business, operations commenced at its first international customer fulfilment centres (CFCs) in Paris and Toronto, a move that could prove highly valuable in demonstrating Ocado’s prowess to international grocers that are currently struggling to gain from bolstered online demand, a habit that CEO Tim Steiner is correct in saying will not fully subside when the virus (eventually) does. Just over a fifth (22.2%, surveyed at the start of June by GlobalData Retail) of all UK consumers are currently shopping more online for food and plan to continue to do after the outbreak – a staggering statistic that will captivate Ocado, particularly if replicated worldwide.

But in terms of UK retail operations, Ocado must now deal with the switch from Waitrose to M&S products (due for September 1^st). Pre-coronavirus, this would have been a carefully managed campaign of retaining existing Ocado shoppers while simultaneous converting instore M&S shoppers online. Now, the frantic dynamics of the online market – which includes direct rival Waitrose pumping investment into its own online presence – makes this transition all the harder for Ocado.”