Ocado has 1 million customers waiting to join its online grocery service after struggling to cope with a surge in demand during the coronavirus pandemic.
Tim Steiner, its chief executive, said Ocado, which has about 800,000 customers, could have increased sales more than five times over, given the level of demand during the pandemic, but had been held back by the limits of its warehouses and delivery network.
Sales at the Hatfield-based firm rose by 40% in May, bumping up growth for the first half of the year to 27% on the same period a year before.
It signed up just 14% new shoppers in the six months to 31 May, with the rest of its growth coming from existing customers buying more items.
Steiner admitted that Ocado was “running a little bit like a club” at present – not letting in many new shoppers in order to protect the service for existing clients. He still insisted that with 350,000 elderly and vulnerable shoppers on its books, Ocado was serving more than its fair share of those less able to visit supermarkets.
He said UK sales of online groceries, which have doubled during the crisis, would double again in the next few years. “The world as we know it has changed. As a result of Covid-19 we have seen years of growth in the online grocery market condensed into a matter of months, and we won’t be going back. We are confident that accelerated growth in the online channel will continue, leading to a permanent redrawing of the landscape of the grocery industry worldwide.”
He said online grocery shopping would become mainstream, taking enough sales away from physical stores to make some “economically challenged”.
Despite its strong growth taking sales to over £1bn in the half year, Ocado made a pre-tax loss of £40.6m as it invested in expanding its technology services to overseas partners including Kroger in the US. Profit margins in the UK dipped as the group had to bring in extra staff to cover absences during the crisis and purchase virus tests and protective equipment for workers.
Analysts at GlobalData said Ocado had a clear opportunity to expand, with just over a fifth of UK consumers saying they are currently shopping more online for food and planning to continue that in the future.
But Thomas Brereton at GlobalData said Ocado’s need to build warehouses, because it does not have a network of stores to deliver groceries from, had slowed its growth, which means major supermarkets were likely to take a bigger share of the online grocery trade. He said Ocado’s need to focus on shifting from its partnership with Waitrose to a new one with Marks & Spencer from September would also limit its ability to exploit the rapid growth in the market.
“While Ocado 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,” he said.
The shift online was also clear at e-tailer AO World, where sales rose almost 20% in the three months to 31 March, despite difficulties with sourcing goods and disposing of customers’ old machines, which held up trade during the lockdown.
“Although it is difficult to predict with certainty, we believe this crisis has had a seismic impact on retail and that many shoppers will have been permanently converted to online shopping. The forced migration to online has presented AO with an opportunity to impress a new customer demographic and convert them,” the company said in a statement.