Business

Ocado says M&S switchover 'successful' after rocky start

Ocado delivery driver Image copyright PAUL ELLIS/AFP VIA GETTY IMAGES

Online grocer Ocado says its switch to delivering Marks & Spencer food has been "successful" and demand is rising despite a rocky start.

The firm, which previously delivered for Waitrose, had to cancel some orders when its new partnership launched on 1 September, angering customers.

But it said launch day had been its "biggest forward order day to date" amid excitement about the new tie-up.

Average shopper baskets have also grown by about five items since then.

It comes as the firm reported a 50% jump in sales for the third quarter of the year at its Ocado Retail business, in which M&S holds a 50% stake.

Ocado said it had benefited from continued strong demand for online shopping during lockdown, with weekly orders climbing 10% in the 13 weeks to 30 August.

Some customers criticised Ocado when it launched its M&S range, saying orders made weeks earlier had been cancelled at the last minute.

The retailer also halted orders from its staff as it tried to clear an order backlog.

However, on Tuesday, the firm said customers had "responded positively to the switchover", with "demand for the new range driving both an increase in the number of products in customer baskets and strong forward demand".

It added: "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."

M&S boost?

Analysts said the results were not only promising for Ocado, but also for M&S. Last year, some warned the retailer might have overpaid for its stake in the partnership at a time when its business was struggling.

Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, said: "This could bode well for Marks & Spencer, whose sales could do with a boost, and who staked a lot on this deal paying off.

"98% of customers are already shopping at M&S, though, so it will be interesting to see how many of these sales will have simply transferred from stores."

Ocado, which booked a pre-tax loss of £214.5m in 2019, said it expected strong underlying earnings of £40m this year because of continued demand for its services.

But it added: "Uncertainties remain over the scale, and duration, of the ongoing impact of social distancing restrictions in the UK."

The firm has said the shift to online shopping during the pandemic could mean a "permanent redrawing" of the retail landscape.

In July boss Tim Steiner said that as a result of Covid-19, "we have seen years of growth in the online grocery market condensed into a matter of months and we won't be going back".

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