UK online grocers hit market share record but outlook depends on COVID-19
Ocado said earlier on Tuesday its future performance will be highly dependent on how lockdowns are eased
UK online grocery sales hit a record 16% market share last month as consumers turned to e-commerce while forced home due to the national lockdown, so it’s unclear how the sector’s prospects could look like.
In January 2020 the figure was only 8% rising to 14% in June 2020, according to research by Nielsen.
READ: Ocado forecasts £700mln yearly capital expenditure in new year as losses reduced over fivefold
The four-week spend rocketed 121% to £1.4bn last month after one in three British households used online services, with £770mln generated by first-time users.
“This growth has once again been driven by increased demand throughout the third lockdown as shoppers shifted spend away from stores where overall growth was flat,” Mike Watkins, Nielsen’s UK head of retailer and business insight, was reported as saying by Reuters.
“Retailers were able to flex their capacity in home delivery and increasingly in click and collect to meet the unprecedented number of new online shoppers.”
The data comes as household name () noted that its future performance will be highly dependent on how COVID-19 restrictions are eased.
“We gave up trying to forecast Ocado some years ago because there is virtually no visibility and the group rarely if ever hits a figure that it starts a financial year desiring,” analysts at Shore Capital commented.
“Normally such poor visibility is a discount factor to an equity. However, in Ocado’s case, the business has thrown the financial physics book in the air and, seemingly, the worse financial output the higher the share price.”
The FTSE 100 tech firm posted a 33% jump in revenues to £2.3bn for the year to last November, with loss before tax reduced to £44mln from £214mln in 2019.
Management says that the addressable market has a value of £7.6 trillion, to which ShoreCap added the £50bn vertical farming market where there is little trading to note at the moment.
Therefore, “it may be best to expect the ongoing investment levels to remain very high alongside derisory capital returns and minimal if any positive earnings for the foreseeable future”, the broker added.
In the current financial year, Ocado forecasts £700mln of capital expenditure to continue expanding UK and international operations, while it ended last November with £2bn of cash and cash equivalents.
Shares dropped 2% to 2,678p on the back of a foggy outlook, not helped by the UK government’s plans to review tax for online retailers.
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