Ocado hit by rising staff costs and fire damage

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Ocado Group PLC (LSE:OCDO) (LSE:OCDO) warned that results this year for its UK joint venture with Marks and Spencer Group PLC (LSE:MKS) will be hit by additional costs for hiring van drivers and to recover from the fire at its Erith fulfilment centre.


Staff shortages will mean extra costs of GBP5mln, largely for drivers where hourly rates have risen, and signing-on bonuses introduced to attract new employees.


The fire has cost GBP10mln in lost orders, with stock and asset write-offs a further GBP10mln, though after insurance the net cost is GBP10mln.


Sales at Ocado Retail, its 50-50 JV with M&S, in its latest quarter dropped due to the disruption from the Erith fire, but also as people started going back to shops again.


Sales at the JV fell 10.6% in the 13 weeks to 19 August 2021 compared with growth of 54% a year ago.


The online group said the fire at Erith transformed the quarter, though sales in the first six weeks were still down 1.6% compared to an exceptionally strong period of the start of the first lockdown.


After the fire (on 16 July) revenues slumped 19% with 300,000 orders lost.


Capacity has been ramped up at fulfilment centres at Hatfield and Dordon and new sites at Andover and in Purfleet have come on stream to take full capacity to over 600,000 orders per week.


Total revenue for the quarter was GBP518mln against GBP579mln a year ago, though average weekly orders rose by 1.4% to 338,000.


Melanie Smith, CEO of Ocado Retail, said there were things to celebrate in spite of the challenges, especially the partnership with Marks & Spencer.


M&S products now represent 29% of the order basket, she said.


“We’re also excited that the go-live of new state-of-the-art robotic customer fulfilment centres at Andover and Purfleet will significantly increase our capacity to serve customers and experience.”

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