Grocery price inflation tops 17% for the first time, Ocado posts loss

• Grocery price inflation rose again to reach 17.1% in the four weeks to 19 February 2023, the highest level ever recorded by Kantar
• Aldi pushes its market share to a new record, hitting 9.4%
• Ocado losses push to -£74m as cost-of-living crisis bites

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown: “Ocado Retail has seen losses mushroom. Despite a 13% increase in active customers, volumes haven’t followed suit, meaning the cost to serve all those online orders has become a burden. Ocado is in the eye of the cost-of-living storm because its offering isn’t synonymous with being the best value, it’s a higher-end option, without the same benefits of enticing people in with tangible, physical goods like M&S or Waitrose can. One quarter of British shoppers are struggling as grocery price inflation goes above 17% for the first time, according to new data from Kantar. It was a year ago that food inflation climbed above 4%, meaning consumers now feel like there’s a hole in their wallet every time they reach the checkout.

Supermarkets are battling to compete in this environment, with a rapid race to the bottom in full swing. There has also been a marked, potentially permanent, change in buying behaviour, with sales of own-branded products rising 13.2% this month, while branded products are up 4.6%. We know from some of the large producers that a lot of the increases in branded products is coming from price rather than volume, which is a less sustainable path. It’s this dynamic that has allowed disrupter Aldi to gain record market share, which is a trajectory that should continue while inflation persists. The bigger question will be how many of its new customers will stick around when things deescalate.

Ocado’s proposition and brand means it could struggle to compete in this bargain-hunting environment, but for now market share is at least moving in the right direction according to Kantar. Online overall fell by 0.9% in the 12 weeks to 19 February, but Ocado sales were up 11.3% in that time. This was likely buoyed by Valentine’s Day, where the sale of more lucrative dinners, including steak and sparkling wine flourished. As we move away from that tailwind, it will be clearer to spot how well Ocado’s market position is doing. Over the medium term it’s possible we’ll see its unique selling point of being online-only being chipped away at, as other supermarkets massively up their game in this arena.

This does have some benefits for Ocado though. Its future engine driver is its Solutions business, which charges third party retailers to use Ocado’s robotic systems. Hundreds of thousands of orders are processed each week, with the help of automated ‘bots’ scurrying around the trademarked grid systems. As online shopping settles at a permanently higher base post-pandemic, this is an excellent product in Ocado’s armoury.”