Ocado’s losses have ballooned – so what now for the retailer?

A half billion loss raises the quesiton: will Ocado’s numbers ever come up in a retail climate beset by inflation, asks James Moore

The retailer revealed a £500m pre-tax loss after shoppers tightened their purse strings (PA)

The slings and arrows of outrageous fortune have been drawing blood at Ocado, which has reported a £500m pre-tax loss for the year to the end of February.

Both its grocer Ocado Retail – a joint venture with M&S – and its online shopping technology business are struggling in a climate that’s turned chilly for online grocers.

At the start of the pandemic, two sides of the business looked set fair, with the retail operation ideally placed to put on new customers willing to place orders for big online baskets and the tech side able to supplement that.

Things look different today. Researcher Kantar’s measure of food price inflation is now at 17.1 per cent, adding a thumping £811 to the average shopper’s annual bill, assuming no adjustment on the part of the consumer (most are adjusting, attested to by a sharp increase in sales of cheaper own-label products).

A quarter of shoppers are now struggling financially, according to Kantar’s research, which ought to push Jeremy Hunt to ease the pressure by holding the energy price guarantee (the business secretary, Grant Shapps, has hinted that this could be coming).

The problem with Ocado Retail is that it is expensive. Consumer magazine Which? ranks grocers using two baskets. The smaller one includes Aldi and Lidl, the larger one omits them. Ocado is the second priciest option in both, with only former partner Waitrose coming off as more expensive. And Waitrose is struggling badly.

Ocado’s shoppers are concentrated in the prosperous south. Its services can be a boon to those who are cash rich, time poor. But food price inflation is running so hot that it is being felt high up the income ladder. Even those who can afford today’s sky-high bills are probably inclined to reassess their bills.

Kantar’s latest figures show that the Ocado group nonetheless managed to increase its market share – a bit. Ocado is still a relatively small player and it moved up from 1.8 per cent to 1.9 per cent.

That wasn’t enough to save the group from falling revenues and a slump into the red, with a £4m loss. That is against a profit of £150m the previous year. Consumers have not been as active as they were during the pandemic.

So to the other side of the business. The company certainly has some whizzy tech. It can credibly be described as a world leader in its field. It has been building a roster of international partners. But it has struggled to tempt grocers in sufficient numbers. Which has contributed to last year’s losses. The current one is unlikely to be any cheerier.

The reaction of city analysts was truly brutal. Words like “dismal” and “awful” were bandied around. Then there was AJ Bell. “As appetising as a bucket of sick,” is what it said of what Ocado put on its plate.

Was the broker going too far with that? No, not really. Ocado’s net debt ballooned from £360m to £577m. People are starting to ask whether there will be another move coming to tap up investors for cash. Here’s something else to wonder about: how much support will there be if there is?

Despite the unhappy numbers Ocado served up, the shares – while worth less than a quarter of their pandemic-era height – didn’t post a double-figure percentage point fall.

To buy or not to buy? I know what my answer would be. But there are still investors around who find Ocado’s tech, at a time when there is little enough of it on the UK market – enticing, and are still willing to listen to founder Tim Steiner’s boosterism and to roll the dice with him.

Snake eyes were the result this time. For the uninitiated, it is when you roll a double one and lose your bet at the craps table. Here’s the question: will the numbers come up in a horrible retail climate for anyone but the likes of Aldi and Lidl – with their traditional bricks and mortar shops filled with their limited selections of cheap products?

Tomorrow will be better, says Ocado. But it has been saying that for a while.