The Week Ahead: Annual profits set to fall at Ocado amid supermarket price war

Inside Ocado's Customer Fulfilment Centre in Hatfield.
Photo: Daniel Leal-Olivas/PA Wire

Inside Ocado's Customer Fulfilment Centre in Hatfield. Photo: Daniel Leal-Olivas/PA Wire - Credit: PA

Online grocer Ocado will update the City on its annual results this week, with forecasts pointing to a third consecutive year of profits.

City analysts are pencilling in yearly pre-tax profits of £10.5m, down from the £11.9m recorded last year.

The group, founded in 2000, only managed to turn its first profit before tax in 2015.

In December, Ocado delivered double-digit sales growth in the fourth quarter but saw order sizes take a hit from the enduring supermarket price war.

Retail sales jumped 13.1% to £398.1m in the 16 weeks to November 27, but average order sizes fell 2.9% as Ocado felt the force of “continued industry-wide price deflation”.

The price war, sparked by the rise of German duo Aldi and Lidl, has engulfed the sector and has seen all of the so-called Big Four supermarkets – Tesco, Sainsbury’s, Asda and Morrisons – come under pressure.

Ocado shares also took a hammering in November after Morrisons unveiled a new one-hour delivery service through Amazon.

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Ocado, which already has a deal in place to deliver orders from Morrisons, saw its share price plunge in excess of 6% as competition notched up yet another gear.

However, chief executive Tim Steiner said in June last year the group had seen “absolutely no impact whatsoever” from rival service AmazonFresh, although he added the firm was “keeping a close eye” on the new competition.

Mr Steiner said at the time the firm has taken steps to support growth by opening a new distribution centre in Andover, Hampshire.

The City is also awaiting details of a much-anticipated international deal for Ocado but Andrew Wade, analyst at Numis, said that observers should not expect any news on this front next week.

He said: “We look for an update on progress, operating metrics, and potential operational/capital efficiencies at the full-year results.

“Elsewhere, we do not expect any news on an international deal at the results, but we continue to believe that the recent opening of a customer fulfilment centre is a crucial milestone in developing this element of the business.

“We continue to believe that the central fulfilment model will prove to be the most efficient option for online grocery operators of scale and that Ocado is developing the most advanced and economic end-to-end technology platform for third party retailers.”