Ocado Retail has warned of higher costs from a shortage of drivers, as it reported a 10.6 per cent fall in revenue after a fire at its London warehouse disrupted operations over the summer.
The Hatfield-headquartered firm, which is a joint venture between Ocado Group and Marks & Spencer, said that it currently needed to pay drivers more and offer sign-on bonuses and called on the Government to add HGV drivers to the skilled shortage list.
The figures compare to a 54 per cent rise in revenue in the same quarter in 2020 when ongoing pandemic restrictions drove significant demand during the typically slower summer months.
Online grocer Ocado Retail has reported a 10.6 per cent fall in revenue in its latest quarter, after a fire at its London warehouse disrupted operations over the summer
Overall, Ocado Retail revenue totalled £517.5 million in the third quarter to 29 August versus £578.8 million in the same quarter last year. Revenue had grown 19.8 per cent in its first half.
The UK delivery business Ocado Retail – a division of Ocado – is owned 50-50 by it and partner M&S, after the online grocery pioneer inked a deal to replace its Waitrose-sourced products with Marks and Spencers goods in 2020.
Ocado highlighted the rising costs of labour, particularly for delivery and truck drivers.
It said that may result in an up to £5 million hit to full-year numbers, reflecting higher hourly pay rates and signing-on bonuses.
But it added: ‘We will be working to mitigate these costs as best we can.’
Ocado said the Government needed to help get more drivers on the road safely, ensuring they could get HGV tests quicker while still being trained properly.
Ocado chairman and co-founder Tim Steiner added: ‘Making it easier is the right answer… it’s important to be able to get more people through the process.
‘If you could get more people through the process by increasing the number of testers, you could run twice the amount of tests then that could be an alternative solution.
‘What is clear is that there is a shortage and it seems to have been significantly exacerbated by the lack of testing that went on while testing facilities were closed or restricted during the Covid period.
‘We wouldn’t want the shortage to be addressed by putting unqualified or dangerous drivers on the road, but we do need as a country to address the shortage.’
The retailer said that over the first six weeks of the quarter it performed in line with expectations, with revenue down 1.8 per cent, reflecting strong comparative numbers with last year.
However, in the seven weeks after the 16 July fire at the depot in Erith, southeast London, revenue declined by 19 per cent.
In addition to cancelling orders in the week following the fire, the temporary reduction in capacity reduced its ability to offer slots to new customers.
Ocado Retail estimates that during that period of temporary disruption it lost around 300,000 orders, or around £35 million of revenue.
Operating losses during the second half due to the business disruption, primarily lost orders, caused by the fire were estimated at around £10 million.
In addition, the impact of stock and fixed asset write-offs and other incremental costs associated with the fire are estimated to also be around £10 million.
Additional safety measures have been put in place at Erith, and Ocado Retail expects pre-fire capacity to be fully restored by the end of November in time for what the business expects to be ‘strong Christmas trading’.
It was the third fire to hit an Ocado warehouse in three years, with its site in Andover, Hampshire, only recently returning to full operation two years after a blaze.
Ocado shares have soared in recent years but are down 35% on their peak
Despite the falls, Ocado said it signed up 64,000 new customers during the period, with 805,000 in total, and orders per week rose 22 per cent.
However, the average basket size was down 12 per cent to £124 compared with £141 a year ago.
Looking ahead, the joint venture forecasts a ‘strong’ revenue growth in its 2021-22 year and beyond with new warehouses set to open in Bicester and Luton, which will extend total capacity even further to around 700,000 orders per week.
Ocado shares were a pandemic winner, rising more than 170 per cent from their February 2020 level to almost reach 3,000p last autumn and earlier this year.
Since February shares have sunk 35 per cent, however, and were down 2.5 per cent, or 47p, at 1,838.5p today.
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