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Ocado's retail revenue grew by 9.7% in the first half (26 weeks ended 2nd June), whilst Group revenue (Retail and Solutions) was £882.3m up 10.5%. 

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Market growth was 1.4% in the 12 weeks to 16 June 2019, according to the latest results from Kantar. Performance has slowed compared to this time last year, when growth was 2.1%. We look at the factors influencing this and key retailers' performance.

Cooler weather slows growth

This year growth is more modest due to the cooler weather and lack of celebratory occasions such as the World Cup to encourage spending. This month does however mark three years of continuous growth in the sector, and is an increase on May when growth was 1.3%. Also, as inflation is down 0.2pp this month to 1.0%, volumes have slightly increased 0.3pp to 0.4%.

Ocado becomes the fastest growing supermarket

Online specialist Ocado became the fastest growing supermarket with sales at +11.3%. This was ahead of the overall e-commerce market at 6%. The growth comes from a small base, with only 3% of shoppers buying from Ocado. However, the results are very positive for the retailer as it was expected to be negatively impacted by the fire at its Andover CFC for the next two years.

For subscribers who want to find out more about Ocado's results and strategy, take a look at our strategic outlook.

Discounters grow share as they expand in London

Discounters continue to win, although sales were slower this month than in May. Aldi grew the fastest at 9.3% (compared to 11.3% in May), increasing its share to 7.9%. This is up 0.5pp on last year. Lidl’s sales grew 7.5% (compared to 8.5% in May), growing its share to 5.7%.

Both discounters announced in June that they are focusing on expansion in London. Aldi 'Local' is growing, with one new store and six conversions opening in June. Lidl has set out plans to invest £500m in expansion in small London stores. This will include 40 new branches.

The new stores for both Aldi and Lidl will be smaller than their traditional format, and will have a reduced range. The discounters have previously struggled in London with the lack of large sites with car parks they prefer to operate in. The new format gives the retailers more flexibility to expand in the city.

Co-op grows through frequent store visits

Co-op continues to have positive results, growing its market share to 6.2%. The retailer continues to expand in London and the South, which has made the region its largest area for growth. Shoppers frequently visit stores for small basket shops, with the average visiting 22 times over the course of 12 weeks.

Tesco is the best performer of the big four

Tesco was the only one of the big four to not lose sales. Last week, the retailer updated its strategic priorities and going forwards will prioritise total sales growth over LFL growth in its continuing drive to rebuild its profit margins.

The other retailers in the big four; Sainsbury's, Asda and Morrisons continue struggle in the challenging market, with negative sales growth.

Iceland remains in growth

Iceland continues to perform well, with growth of 0.6%. The retailer recently revealed its results for the 52 weeks ending 29 March 2019. Sales increased by 4.5% to £3.08bn in the reported period. This was driven by new store openings as like-for-like sales were broadly flat.

 

Retailer 12 weeks to 17th June 2018 12 weeks to 16th June 2019 Sales growth (Y-O-Y%)
Tesco 27.7 27.3 0.0%
Sainsbury's 15.6 15.3 -0.6%
Asda 15.1 14.9 -0.1%
Morrisons 10.6 10.4 -0.5%
Aldi 7.4 7.9 9.3%
Co-op 6.1 6.2 3.0%
Lidl 5.4 5.7 7.5%
Waitrose 5.1 5.0 0.0%
Iceland 2.2 2.1 0.6%
Ocado 1.2 1.3 11.3%
Other Multiples 1.8 1.9 8.5%
Symbols & Independents 1.8 1.7 -3.0%

 

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Online retailer Ocado has announced it has invested £17m in the vertical farming industry.

Newly emerging industry

Ocado has announced plans to expand into food production with two complementary investments into the newly emerging vertical farming industry.

Vertical farming is the production of food in indoor facilities where crops are grown on a series of levels in a precisely-controlled environment. The method enables products to be grown all year round, without pesticides or fungicides. Vertical farming is also considered to be more sustainable due to its low wastage, low water usage and minimal land use.

The density of vertical farms enables them to be placed in close proximity to customers. Ocado plans to co-locate vertical farms within or next to its Customer Fulfilment Centres (CFCs), allowing produce to be harvested hours before packing.

One of the biggest barriers to shopping online for groceries is freshness. Of the people who claim to ‘never’ shop online for their food and groceries, 69% say they prefer to pick their own produce in-store (Source: IGD ShopperVista Mar ’18). Ocado will be able to offer shoppers year-round, British produce, grown in efficient and sustainable ways. The produce is likely to have a longer shelf-life which is better for shoppers and could help Ocado reduce its already industry leading wastage of 0.8%.

Vertical farming could become another benefit to international retailers interested in purchasing the Ocado Smart Platform, potentially opening up new markets for the retailer.

Two key investments

Ocado’s investment includes the formation of a three-way joint venture, named Infinite Acres, with US-based vertical farming company 80 Acres and Netherlands-based industrial systems provider Priva Holdings.

As part of the £17m investment, Ocado has also completed the acquisition of a 58% stake in Jones Food Company (JFC), Europe’s largest operating vertical farm based in Scunthorpe. JFC currently produces leafy greens and herbs for UK customers, with capacity expected to grow to 420 tonnes per year.

Tim Steiner, Ocado’s CEO, commented: “We believe that our investments today in vertical farming will allow us to address fundamental consumer concerns on freshness and sustainability and build on new technologies that will revolutionise the way customers access fresh produce. Our hope ultimately is to co-locate vertical farms within or next to our CFCs and Ocado Zoom's microfulfilment centres so that we can offer the very freshest and most sustainable produce that could be delivered to a customer’s kitchen within an hour of it being picked”.

Want to know more?

We review Ocado's current performance, its growth forecasts for the next five years, plus progress against key strategic objectives in our Strategic outlook for Ocado report here.

Sobeys has revealed that its new grocery home delivery service, launched in partnership with Ocado, will be Voilà by Sobeys in Ontario and Voilà par IGA in Quebec.

First customer fulfilment centre under construction

Last year, Sobeys announced that it would partner with UK-based Ocado to launch an ecommerce service into the Ontario market. Sobeys is currently constructing a new customer fulfilment centre adjacent to its existing automated distribution centre in Vaughan, Ontario, optimising Ocado’s robotic-driven solutions. The retailer anticipates rolling out home delivery to customers in the Greater Toronto Area in spring 2020.

Source: IGD Research

Aiming to win channel share through cost and service advantages

By creating a new brand for the service, Sobeys will be able to create significant noise and activity around the launch. It will also feature the “Your groceries delivered. Just like that.” tag line. The retailer will offer around 39,000 products through the service, which is expected to include ranges from Farm Boy, the grocery business it acquired at the end of last year. It believes that the cost and service advantages of its model, along with Ocado’s software platform, will enable it to gain channel share, despite its later entry. Commenting on the new service, Sarah Joyce, SVP ecommerce at Sobeys, stated,

”“We are building the most advanced e-commerce infrastructure in Canada. An online grocery home delivery experience like Voilà by Sobeys does not yet exist in Canada. While most players in the industry are focused on store pick models to fulfil their online orders, we are building automated warehouses specifically designed for best-in-class home delivery based on a highly successful model from the U.K. “

Second automated fulfilment centre to be built in Montreal

This service will build on its established ecommerce business in Quebec. However, this will eventually transfer to the Ocado model in 2021. The retailer announced that it will develop a second customer fulfillment centre in Pointe-Claire, Montreal. Currently the retailer uses a store pick model from its IGA stores in the province. This model will remain operational until the new fulfillment centre comes on stream.

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Presentations

09/07/2019
Our selection of key insights from across Retail Analysis and ShopperVista from the last three months. This report includes the latest macroeconomic and shopper sentiment data, retailer results and market shares. We also highlight the latest channel and market trends, and new store formats.
08/07/2019

An essential summary of trading priorities, latest developments, and other key commercial insights for Ocado.

18/04/2019
Our selection of key insights from across Retail Analysis and ShopperVista from the last three months. This report includes the latest macroeconomic and shopper sentiment data, retailer results and market shares. We also highlight the latest channel and market trends, and new store formats.
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