Online grocer heads towards profit

Online grocer heads towards profit

Online grocer Ocado moved into profit in the second half of last year driven by sales growth and supply chain efficiencies.

Gross revenue was up 29 per cent to £551.1m for the year to 28th November, while operating loss for the year was 63 per cent down at £5.4m.

Average orders per week increased from 70,873 in 2009 to 92,916 in 2010. However, average order size showed a slight decrease to £114.06 for the year, as a result of customers increasing their frequency of shop but with a slight decline in order size.

Chief executive  Tim Steiner said: “Significant effort was also spent over the year on the behind the scenes projects which enable us to deliver capacity growth and customer offer improvements.  These occurred in all areas of the business affecting processes, software and hardware. 

“For example in the warehouse one of the major projects was the addition of three new chill aisles.  This enabled the termination of the relatively inefficient process of trolley picking for chilled goods.  On the software side over 1,500 individual changes were made to our warehouse systems.”

However, Steiner admitted that the rapid increase in the scale of the business had presented operational challenges.

“The customer fulfilment centre capacity grew in line with expectations with a slight impact on productivity gains.  We reintroduced a number of processes, such as trolley picking, to help cope with increased demand.  This impacted warehouse efficiency with units per hour  decreasing by 2.2 per cent to 121. 

As our planned capital spend is invested in CFC1 over the coming years, we expect productivity to rise substantially and the long-term target of 180 units per hour remains in place.  At 99 per cent for the year, the accuracy of our offer remained at a level we believe is significantly higher than our competitors.  This is slightly down on last year and we expect the capital projects planned for the warehouse will improve this.

However, the increasing scale of the operation actually benefited delivery efficiency. This, combined with upgrades to the routeing software and vans, led to drops per van per week increasing by ten per cent to 133. 

The best week saw 159 drops per van per week – however the target is 175.

Steiner identified three events during the year as the building blocks for the long-term success of the business. 

In May, Ocado signed a new ten year agreement with Waitrose while in July, the company was listed on the London Stock Exchange enabling it to raise funds for capital projects.

And October, it reached agreement to purchase the site for a second warehouse – the biggest capital project in the plan to more than triple the capacity of the business from 2009 to 2013.