Ocado delivers first annual profit

http://www.theguardian.com/business/2015/feb/03/ocado-first-annual-profit-waitrose-morrisons

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It has taken 15 years to get there - but the online grocery firm Ocado has finally delivered a profit.

The company, founded by three former Goldman Sachs bankers in 2000, is cashing in on changing shopping habits as more customers choose to drop the weekly supermarket shop in favour of buying online. The business was built on selling Waitrose groceries, but it now offers a range of own-brand goods and last year did a deal with Morrisons to offer an online grocery service to the supermarket chain’s shoppers.

Tim Steiner, one of the founders and the company’s chief executive, said that while traditional grocers such as Tesco and Morrisons were battling with declining sales, price wars and cautious consumers, Ocado was growing “ahead of the online grocery market and significantly ahead of the market overall”.

Ocado was in the black to the tune of just over £7m – from revenues of nearly £1bn– in the year to the end of November. Every previous year it has been in the red, recording a £12.5m loss in 2013.

The lack of profits has not stopped the founders becoming multimillionaires. Two of the original three – Jason Gissing and Jonathan Faiman – have retired from the business. Gissing cashed in shares worth £15m last year to spend more time working on environmental projects, while Faiman now lives in Monaco.

The number of Ocado shoppers increased by 68,000 over the year to 453,000 and they are big spenders: the average amount spent by customers per online shop was £112.25.

Steiner said he expected the pace of growth to continue at a similar rate because online shopping would become more efficient, enabling Ocado to cut prices.

“Our early association with Waitrose means we are seen to be an expensive retailer, but we offer outstanding value for people in the UK who can shop like they’re rich but don’t need to be,” he said.

Steiner said Ocado had been able to book a profit because it was pushing more goods through its highly-mechanised distribution centres, making them more efficient. The extra goods are partly the result of the deal with Morrisons.

Related: Ocado dismisses fears over Waitrose supply deal

The business’s move into the black comes during a difficult time for Britain’s leading supermarkets, which are jostling for market share amid the switch to online shopping and the rise of discounters Aldi and Lidl as well as upmarket grocers Waitrose and Marks & Spencer.

Steiner said profits would have been £10m higher if the firm had not been forced to cut prices to stay competitive, which had hit profit margins but Ocado had been relatively unscathed by falling food prices, which was “decimating the profitabilty” of some supermarkets.

Sainsbury’s blamed an intense price war for its first fall in Christmas sales in a decade and announced it was pulling out of building 40 new supermarkets. Tesco last week revealed the identities of 43 unprofitable stores it will close in an attempt to turn around the embattled company. It has also abandoned 49 new store developments.

Steiner said he did not know if Ocado would remain profitable, because this year’s profit had been a happy accident rather than part of the plan.

“We’re not sitting here popping open the champagne,” he said. “We may or may not [book a profit this year]. It’s not our primary focus to make short-term profit. We are focused on long-term shareholder value.”

Ocado is increasing its investment spending by more than a third to £150m to open new distribution centres and increase the size of its fleet of vans. It also plans to launch a specialist online beauty store in partnership with women’s magazine Marie Claire.

The firm has delivered groceries for Waitrose since it was founded in 2000, and launched a separate partnership with Morrisons in January last year, enabling the supermarket chain to offer an online service for the first time.

Steiner would not be drawn on speculation that Waitrose could end its long-standing relationship with Ocado in 2017, when there is a break clause in the contract. He said that while Ocado saw no reason to terminate the deal, “there is no point me speculating about what other people want to do”.