![Ocado delivery van](https://media.guim.co.uk/42654b0d142fd381cf8d4c5995aaf56a51c1886a/49_0_3416_2050/1000.jpg)
Ocado is pausing the rollout of new distribution centres in the UK after making a record annual loss of more than £500m – as customers rein in spending.
The online grocery retailer said it expected to receive almost 40% less than hoped in performance payments from Marks & Spencer, its partner in the UK venture, because of the “challenging market” affecting sales and profits.
M&S had been due to pay Ocado £191m in 2024, the final instalment of the £750m Ocado Retail joint-venture deal agreed in 2019. But that figure is expected to be about £70m less, although talks with M&S continue.
New distribution centres planned for the south-east and north-west of England have been put on hold as Ocado said it had built capacity to process 700,000 orders a week in the UK but was delivering less than 400,000. It now expects to take several years to reach capacity.
Ocado said 2022 was a “challenging year”, as customers put fewer items in their baskets and used more discount vouchers.
Tim Steiner, the chief executive, said from 1 March, the business would reintroduce price matching with Tesco on more than 10,000 products, after ditching the policy two years ago.
The changes come after revenues at Ocado Retail, a joint-venture with M&S, fell by 3.8% in 2022, despite the company reporting record sales over Christmas. The Ocado group’s pre-tax loss widened to £500.8m from £176.9m in 2021. Analysts had forecast an annual loss of £399m.
Customers ordered fewer items in each shop than in 2021, when Ocado benefited from booming demand for grocery deliveries during the pandemic. The average basket size fell to 46 items in 2022 from 52 in 2021, taking the average value from £129 to £118.
Steiner said Ocado had given a “strong performance in a very bad year”. He claimed its customers were experiencing less inflation than in the wider market – at just under 9% for each item – and suggested the business could benefit from families saving by switching from dining out to eating at home.
“We have been in tough times before and we have grown in those times and expect to carry on doing that,” he said.
Steiner said though online grocery retailing was in retreat since Covid lockdowns ended – now accounting for about 11% of grocery retail compared with 15% at its peak – he expected it to return to growth. Steiner said even if the market remained static, Ocado expected to take customers from rivals, as its service was better.
Shares in Ocado were down 10% on Tuesday, making it the biggest faller on the FTSE 100.
As fuel and food prices have increased around the world, Ocado has been grappling with higher cost inflation from food suppliers, and raised its average prices by 4.5% last year, to £2.55 an item from £2.44.
“Over the last year every company has had its business model tested by a combination of macro-economic and geopolitical headwinds,” Steiner said. “Ocado Retail has shown its resilience against a backdrop of higher costs and smaller baskets, reflecting the Covid unwind and the UK cost of living crisis, by growing customer numbers and increasing online market share.”
Active customer numbers increased 13% to 940,000 and Ocado’s share of the online grocery market has grown to 12.3% from 11.7% in 2021, according to Nielsen figures. Orders each week averaged 377,000, compared with 357,000 in 2021.
Retail revenues declined by 8.3% in the first half of the year, followed by growth of 1.4% in the second half as volumes started to trend towards a more normal basket size.
Overall group revenues were flat at £2.5bn last year. Ocado has developed automated warehouses where robots move around grids picking and packing groceries, and sells its warehouse technology around the world. It struck two new international partnerships last year, with Lotte Shopping in South Korea and Auchan Polska in Poland, to jointly build warehouses.
On Tuesday, Ocado said it was speaking to potential partners about using its technology to pick and pack non-grocery items.
The company opened 12 sites for its partners, which included Kroger in the US: nine full-size automated warehouses and three smaller Zoom sites for its rapid delivery service.