Online grocer Ocado Group PLC (LON:OCDO) posted a 11.6% increase in revenue in the 14 weeks to December 3 ahead of the key Christmas period, though a shortage of delivery drivers limited growth.
Retail revenue rose to £373.8mln from £334.8mln the same period a year earlier as the company ramped up capacity at its customer fulfilment centre (CFC) in Andover.
READ: More about online than groceries: Ocado seen as a technology firm than a retailer
Average orders per week climbed 11.1% to 280,000 from 252,000 and the average order size grew 0.3% to £106.11 from £105.83.
Ocado processed over 50% more orders per week through its Andover facility compared to the beginning of the period, according to chief executive Tim Steiner.
"While we continue to report sector leading double digit sales growth in our retail business, a shortage of capacity, with the lack of drivers in certain locations being the largest factor, restricted our sales growth,” Steiner added.
“While this driver shortage has now been largely resolved, there was some short-term impact on average orders per week over the period.”
Capacity expansion
Ocado plans to open its fourth CFC in Erith, south-east London in 2018. It will be able to process an additional 200,000 orders per week.
“Building scale and capacity in the UK will support the sustainable growth of our retail business, enabling us to take further market share in online grocery, and we look forward to the coming year with confidence,” Steiner said.
READ: Ocado surges on second international partnership, with Casino signing deal in France
Ocado boosted by retail partnerships
Ocado, which runs the technology and delivery network for Morrison Supermarket PLC’s (LON:MRW) online business, signed a deal with French supermarket Groupe Casino in November. Groupe Casino will use Ocado’s e-commerce platform to expand its business.
“We are delighted that Groupe Casino chose to partner with Ocado Solutions to develop its online food business and we remain confident in our ability to sign more deals such as this in the medium term,” Steiner said.
Partnerships with retailers are vital to Ocado's business since it has just 1.3% market share in the UK through its own branded grocery service, according to the latest data from Kantar Worldpanel. In June it also struck a deal with an unnamed European retailer to use its software platform.
"While Ocado has always been confident of getting partners to sign on the dotted line, up until recently the investment case relied more on wishful thinking than we might have liked," said George Salmon, equity analyst at Hargreaves Lansdown.
"However, the agreements with Groupe Casino and an as yet unnamed European partner have lent more substance to the story. Hopefully Mr Steiner can pull more rabbits from the hat in the coming months.”
Amazon's threat to the grocery industry
The need for such deals comes as competition in the grocery delivery market heats up following Amazon's acquisition of Whole Foods.
At the time the deal was announced in August, Ocado was widely rumoured to be Amazon's next takeover target, given its share price is now just over half of what it was at its peak of 617p in February 2014.
But analysts at Numis expect Ocado will secure multiple deals for its software platform.
The analysts reiterated a 'buy' rating on Ocado, saying: "Notwithstanding the short term impact on top-line momentum from driver shortages, we are encouraged by the improved trend in basket size and the successful ramp-up of CFC3."
"More significantly, we continue to believe that Ocado is developing the most advanced and economic end-to-end platform for third party retailers – a view strongly endorsed by the recent Groupe Casino deal – and expect Ocado to sign multiple deals in the coming years."
Shares rose 3.34% to 353p in midday trading.