Ocado: Shoppers are buying more M&S goods than Waitrose after food launch

More customers are buying Marks & Spencer’s products from Ocado than they bought Waitrose goods, the online grocer said today.

Two weeks after launching their joint venture, Ocado said “the weighting of M&S products in the average Ocado basket is higher than Waitrose prior to the switchover, reflecting positive customer reaction to the addition of M&S to the range”.

The launch, on September 1, has spurred an increase in “the number of products in customer baskets and strong forward demand”. Ocado said staples such as M&S milk, cucumbers and carrots were selling well, as well as ready meals and Percy Pig sweets.

Ocado launched its much-hyped joint venture with Marks & Spencer at the start of this month after a 20-year partnership to sell Waitrose goods, alongside its own brand products, came to an end.

In response, Waitrose has ramped up its own online capacity and marketing of its services in the battle for online grocery spend.

In a trading update, Ocado’s quarterly retail sales shot up 52% as it hung on to shoppers gained during lockdown and added new ones after it gradually reopened its site to new customers.

The company reported an acceleration in quarterly retail sales to £587.3 million, with average orders per week up 9.6% in the third quarter to 345,000.

Melanie Smith, who runs the Ocado-M&S division, said: “Our aim is to continue to set the bar as we begin again to welcome new customers who are seeing the benefits of online shopping in ever greater numbers and we remain focused and on track to increase capacity by 40% through to 2021.”

The company put the order growth down to “a combination of strong demand, a phased reopening of the website to new customers, and a normalising of shopping patterns”.

Full-year profits are expected to come in at at least £40 million, better than £26 million previously expected. The shares, which began the year at 1260p, rose another 141p or 6% to 2496p.

Ocado’s initial range of 4,400 M&S food products replaces around 4,000 Waitrose products and around 800 more of these products are expected to be added in the coming months as the retail group heads towards Chrismtas. Ocado.com is also expected to add 700 M&S home and lifestyle products such as kitchenware and baby products.

Chief financial officer Duncan Tatton-Brown said he had seen “practically no sign” of losing customers, and it had expected to lose some.

The company faced complaints on social media from customers whose orders were cancelled. Tatton-Brown said a late surge in demand before the M&S launch had caused some “very slight issues”.

Ocado’s recent growth has been underscored by a 79% surge in the share price. The online grocer initially struggled to cope with a surge in demand for delivery slots in early lockdown but still enjoyed a surge in sales as shoppers opted to order food to their homes.

The group has been busy investing in warehouse and distribution space and technology for grocers around the world as it switches towards becoming a tech supplier and away from simply an online supermarket.

Numis analyst Simon Bowler said: “Whilst the equity debate for Ocado is largely focussed on the international solutions business, evidence of continued demand, successful execution and better earnings in the UK helps validate the model, encouraging for the investors and partners.”

Ian Forrest, investment research analyst at The Share Centre, said: “Today’s figures also suggest that the switch made by many people to online grocery deliveries during the lockdown has been sustained so far. Investors will be watching to see if basket sizes remain at similar levels to those previously achieved with Waitrose products, although it is encouraging to see that Ocado is already offering a larger range of M&S products in the new service.”

Britain’s supermarkets have been scrambling to build up their online divisions, hiring extra staff as a spike in demand in lockdown appears to be enduring. Many customers who had not tried ordering food online before the Covid-induced lockdown have stuck with the channel, which is typically less profitable for the supermarkets.