A pandemic-driven surge in demand for online grocery orders last year has reduced losses at Ocado, but the company’s plans to further step up investment cast a shadow yesterday over its

prospects for future earnings. Pre-tax losses were pared back to £44 million in the year to November 29 from £214.5 million in the previous 12 months as revenues rose by a third to £2.3

billion, driven by sales from its new joint venture with Marks & Spencer. On an underlying basis, earnings rose by 68.8 per cent to £73.1 million. Tim Steiner, Ocado’s co-founder and

chief executive, said yesterday that the emergence of Covid-19 had triggered a rapid acceleration in the shift to online grocery and claimed that the landscape for food retailing was

when customers have done this three to five times they tend to stick with it, so it’s likely that it will just keep growing,” he said. Advertisement Ocado was founded in 2000 by three former

Goldman Sachs bankers. Its British business delivers groceries for Wm Morrison and more recently it established a partnership with Marks & Spencer, after a supply agreement with

Waitrose expired. The FTSE 100 company also has been striking contracts abroad, such as with Kroger in the United States and Coles in Australia, to develop automated warehouses. However, it

has been constrained by capacity in its own warehouses, known as customer fulfilment centres. Active customers at Ocado’s retail division dropped from 795,000 to 680,000 in the past year

because of the “unprecedented demand”, increased orders from its “most loyal” customers and a larger basket size, the value of which increased on average by £31 to £137. Ocado has been

investing heavily in technology and its warehouses. Capital expenditure was £525.6 million last year, up from £260.7 million in 2019 but lower than expected. Ocado said that it would

increase to £700 million this year and that the business would hire 600 new employees. Three new warehouses are due to open this year, including one in Andover, Hampshire, which burnt down

in 2019, and a smaller site in Bristol that is designed to supply customers in areas of lower population density. Together they will add 40 per cent capacity to its network at full output.

Advertisement Ocado is also building smaller distribution centres for faster same-day delivery. An initial site in west London is full and a second location in the capital has been secured.

Ocado is searching for an additional dozen sites within the M25. The first of its international warehouses opened in Paris last April for the Casino group and in Toronto in May for Sobeys.

Steiner said that there was a “significant opportunity” for its partners to increase sales as the key global grocery markets that Ocado had targeted were worth £2.8 trillion, of which its

partners represented 7.5 per cent. Ocado is also looking at services outside of the grocery industry, such as for general merchandise. The company continues to split opinion among analysts.

Clive Black, a retail specialist at Shore Capital, a house broker to the rival Marks & Spencer and an Ocado sceptic, said that the “fantasy persists . . . but with still derisory

returns. We gave up trying to forecast Ocado some years ago because there is virtually no visibility and the group rarely, if ever, hits a figure that it starts a financial year desiring.”

Shares in Ocado fell by 46p, or 1.7 per cent, to £27 on the London Stock Exchange, having outperformed the FTSE 100 last year and having risen before the results were published. PATENT

DISPUTE MEANS ‘SIGNIFICANT’ RISE IN LEGAL COSTS Ocado is facing “significantly” higher legal costs this year amid an escalating patent battle with AutoStore, a Norwegian rival. Advertisement

AutoStore, owned by THL, an American equity firm, filed claims in Britain and the United States in October alleging that Ocado’s technology licensed to its joint venture with Marks &

Spencer and overseas supermarkets had infringed several of its patents. AutoStore asked the courts to stop Ocado from selling the technology and applied to the Intellectual Property Office

in the UK claiming ownership of several Ocado patents. Ocado has defended the claims, believing that it does not infringe “any valid AutoStore rights”. An application to declare invalid

Ocado’s European patent for part of its technology system was rejected by the European Patent Office in January, the online grocer said. Ocado has responded by bringing two separate

proceedings against AutoStore in the US. The first alleges patent infringement and the second is an antitrust claim. The latter claims that four of the five AutoStore patents on which it has

based its case were “procured by fraud against the US Patent and Trademark Office”. Advertisement Ocado said that it was “very difficult to predict litigation costs, but we expect to incur

significantly more legal costs than in 2020. These will be treated as exceptional items.” Litigation costs last year of £2.7 million related to the AutoStore patent dispute, as well as a

separate legal case against Jonathan Faiman, a co-founder of Ocado, relating to allegations that he used confidential information to set up Today Development Partners, a rival that tried to

poach clients. TDP countersued, claiming Ocado’s legal action had scuppered its planned deal with Waitrose. A spokesman for AutoStore said: “Ocado’s claims are wholly without merit and its

most recent suit is nothing more than a predictable response to the legal action we have taken to protect our valuable proprietary technology.” WEB GROCERY SALES HIT RECORD AMID LOCKDOWN The

online share of Britain’s grocery market has hit record levels as the third national lockdown pushed up demand (Ali Mitib writes). Online grocery sales in the four weeks to January 30

accounted for 16 per cent of the entire market, up from 8 per cent last year, according to figures from Nielsen. The market share was at its highest level, surpassing the 14 per cent

recorded in June last year. Nielsen said that British consumers had spent £1.4 billion on groceries online, up 121 per cent on the year before. Advertisement The market research company also

revealed that one in three households had shopped online during the period, with new online shoppers accounting for £770 million in sales. Online sales accounted for 16 per cent of the

entire market HOLLIE ADAMS/GETTY IMAGES Mike Watkins, Nielsen’s UK head of retailer and business insight, said that shoppers were shifting away from physical stores, where overall growth was

flat. “Retailers were able to flex their capacity in home delivery and increasingly in click-and-collect to meet the unprecedented number of new online shoppers,” he said. Nielsen said

total UK grocery sales had risen by 10.6 per cent in January year-on-year, the highest level of growth since June 2020. Morrisons, the smallest of the Big Four grocers, performed the best,

with sales growth of 10.5 per cent in the 12 weeks to January 30. Tesco’s sales grew by 8.6 per cent, Sainsbury’s were up by 8.2 per cent and Asda’s rose 7 per cent. Analysts at Shore

Capital said: “The key feature of the Nielsen update is the strength of the online grocery channel, with 16 per cent participation recorded; a channel that is now demonstrably more

profitable for the trade. We expect trading momentum to reverse with unlocking from March and in the face of tough comparatives.”