The financial performance of Ocado, the online supermarket, has taken a significant hit as losses surged to £44.9 million. This sharp increase in losses is attributed to the company’s substantial investments in technology solutions.
Ocado had posted a £9.8 million loss the previous year, and despite a 12 per cent rise in retail sales to £1.48 billion, the online grocery retailer’s financial landscape appears challenging.
Significant Investments in Technology
Ocado’s investments in technology have been substantial, contributing to its increasing losses. The company has seen its headcount in Ocado Technology grow by 76 per cent over the last three years, hiring numerous programmers.
This rapid expansion in technological capabilities includes the filing of 395 patent applications. These patents cover a range of advanced technologies, including real-time control systems, robotics, artificial intelligence, and routing systems.
Growth in Customer Base and Retail Sales
Despite the financial losses, Ocado has experienced growth in its retail sector. The company’s retail sales increased by 12 per cent to £1.48 billion, and it saw a 12 per cent rise in active customers, reaching 721,000.
In addition to retail sales, revenue from providing technology to other businesses surged by 16 per cent to £123 million. This highlights Ocado’s role as a technology provider in the market, beyond its online supermarket operations.
Expansion of Fulfilment Centres
One notable achievement for Ocado is the expansion of its fulfilment centres.
The company has opened its fourth customer fulfilment centre in Erith, South London, which stands as the largest fully automated CFC globally. This facility processes more than 30,000 orders a week, significantly surpassing the capacity of its manned counterparts.
Ocado’s CEO, Tim Steiner, described the company’s transformation as an ’18-year overnight success’ and emphasised their future growth potential.
Challenges Ahead
Despite the growth in customer base and technology revenue, Ocado faces several challenges.
The company expects its retail business to post annual sales growth of 10-15 per cent in 2019. However, with no new fulfilment centres planned for opening in 2019, a decline in Ebitda is anticipated due to increased operating costs of £15-20 million.
Ocado acknowledged the potential impact on short-term profits, stating, ‘We continue to target further solutions deals, which would generate additional cash fees but would impact short-term profits.’
CEO’s Optimistic Outlook
Tim Steiner, Ocado’s CEO, remains optimistic about the company’s future despite the financial setbacks.
Steiner stated, ‘Our growth story is only just beginning. We now have in place a platform for significant and sustainable long-term value creation.’
He highlighted Ocado’s position as a leading pure-play digital grocer in the UK and a world-class provider of end-to-end ecommerce grocery solutions.
Future Plans and Innovations
Ocado’s growth strategy involves scaling the business and enhancing their platform for long-term success.
Steiner noted, ‘Creating future value now will involve us continuing to scale the business, enhancing our platform, enabling our UK retail business to take advantage of all its opportunities for growth, and innovating for the future.’
Ocado’s commitment to innovation is evident in its ongoing efforts to develop and implement cutting-edge technologies.
Conclusion
Ocado’s journey has been marked by significant investments and innovations, leading to substantial losses.
However, the company remains focused on long-term value creation and growth, with an optimistic outlook for the future.
Ocado’s substantial investments in technology have led to significant financial losses, but the company’s growth in retail sales and customer base indicates potential for future success.
The company’s expansion of fulfilment centres and commitment to innovation underscore its determination to remain a leading player in the online grocery market.
