Ocado has told investors it will pause the construction of more automated distribution centres in the UK, as the online grocer expects sales to fall for the first time in its history.
Presenting to analysts, Ocado said that two new Customer Fulfilment Centres (CFCs) scheduled to open in 2024 and 2025 would be delayed
Stephen Daintith, Ocado’s chief financial officer, said: “We’ve taken the decision to pause the north-west and south-east CFCs. That may change, it’s a pause not a stop, but we think it’s a sensible thing to do given the surplus capacity we have today.”
According to the Financial Times, this decision means the sales capacity of Ocado Retail, the joint venture with Marks and Spencer, will now reach £3.9bn in the medium term, rather than the £4.5bn previously planned. Its sales last year were £2.3bn.
The online grocer had already warned it might not accelerate a capacity expansion programme put in place after its existing facilities could not be ramped up quickly enough to capitalise on booming demand during the Covid-19 pandemic. It has recently opened new warehouses in Essex, Bristol and Luton.
The group stressed that it did not intend to sell its half-share in Ocado Retail to M&S to raise funds.
“That is not an option we are seriously considering. Right now at the reduced margins . . . would not be a sensible time to sell that business,” added Daintith.
Some analysts are debating whether the slowdown in the UK market may affect the company’s international solutions business where it sells tech to other retailers. It had agreed to build more than 60 CFCs for Kroger in the US, Aeon in Japan and most recently Lotte in South Korea.
“If [Ocado clients] are unsure where online demand is going and about the profitability of CFCs, it is surely safer to stick to in-store picking,” Andrew Gwynn at Exane BNP told the Financial Times.