Waitrose Success Worries Ocado
By Laura Elliott.
Up-market retailer Waitrose has experienced a 68% surge in online orders. The festive increase has cast doubt on the future of Ocado, however, a leading retail analyst has warned. The John Lewis-owned service receives a boost from the end of non-compete clause, helping the supermarket to record £200m in Christmas sales.
Clive Black, analyst at Shore Capital, said that executives at the grocery delivery company “must be very worried” about the momentum Waitrose is building in its online business. The John Lewis-owned supermarket reported a 68% rise in internet orders in the week before Christmas, and managing director Mark Price said that he was committed to doubling online sales over the next few years.
Price said that the “phenomenal” growth in online sales helped drive Waitrose to a “record-breaking” £200m worth of Christmas sales. Waitrose’s fledgling online operation represents 3% of its total sales, but Price said that they aim to increase the growth to 5%-6%. The growth follows more than £20m worth of investment into Waitrose.com and associated packing facilities.
Waitrose.com has also been boosted by the ending of a non-compete clause that, until last summer, prevented Waitrose from going head to head inside the M25 with Ocado, which also sells Waitrose-brand food. “We’ve long held the concern that as Waitrose builds online presence, Ocado will suffer,” Black said. “We worry about the scope for a steady migration of Ocado customers to Waitrose as the main reason customers shopped at Ocado was to get Waitrose products.”
However, he cautioned that it was difficult to determine a long-term trend because Waitrose only released online data for one week of sales. While the number of orders rose by 68%, sales increased by 49% as new customers tend to make smaller purchases. Jonathan Pritchard, an analyst with Oriel Securities, said that there was “absolutely no doubt” that Waitrose’s surging online sales will hurt Ocado.
Ocado, which was founded by three former Goldman Sachs bankers in 2002, has had a difficult start to life as a listed company. Their shares, which debuted at 180p in July 2010, were the biggest faller in the FTSE 250 at one point on Thursday before closing down 0.65p to 57.2p. It is the UK’s fourth biggest online supermarket behind Tesco, Sainsbury’s and Asda.
Price said that Waitrose did well in the run-up to Christmas because “if people want something extra special they come to us”. Among its most popular lines, the retailer sold 2.4m Heston Blumenthal mince pies, 1.5m pigs in blankets and 9,000 pots of edible gold dust to decorate Delia Smith inspired cakes. Like-for-like sales in the five-week pre-Christmas period rose 3.8% compared with last year, or 9.5% including new stores and extensions. Turkey sales jumped by two-thirds and there was a big spike in demand for seafood, with sales of luxury seafood entrées up 217% and dressed lobster up 278%.
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