Ocado to ramp up marketing after posting profit

Ocado plans to ramp up marketing spend in the second half of the year to build on a strong start to the year that saw it post a pre-tax profit and sales growth that outpaced the market.

ocado

The online grocery retailer says it swung to a pre-tax profit of £7.5m for the six months to 18 May, compared to a loss of £1m a year ago. The results put Ocado on course to make a pre-tax profit for the first time since it was founded in 2000.

Retail sales were up 15.6 per cent to £442.4m, slower than the 18 per cent growth a year ago. Ocado says it saw a 15.8 per cent increase in orders but a decline in basket size caused in part by its ‘Low Price Promise’ scheme that price matches with the big four supermarkets, which have dropped their prices in recent months as they face growing competition from the discounters.

Speaking on a call this morning (1 July), Ocado’s chief financial officer Duncan Tatton-Brown said its absolute marketing spend was lower in the first half, at 2 per cent of retail revenue, down from the usual levels of around 2.5 per cent. This was because Ocado reduced activity that targeted less frequent shoppers and held back on acquisition and above-the-line marketing due to strong growth early in the half and “trials of other marketing channels”, he added.

Chief executive Tim Steiner told Marketing Week that at any one time Ocado is running up to 1,000 marketing channels, including trials of new technology with the likes of Google, Facebook and Sky such as Sky AdSmart or live video initiatives with Google.

“We are always trying new stuff and new ways of targeting customers that have been to the site and not shopped. We also work with neuro psychologists to make sure that people react best to our marketing,” he said.

Ocado is also continuing to run marketing campaigns aimed at increasing awareness of the brand – including an ad running on TV and on some digital channels at the moment in certain areas. Steiner said perceptions of the brand, its service and its pricing still remain an issue among non-customers and that is an area Ocado is “looking to overcome”.

Tatton-Brown expects marketing spend to pick up in the second half and said it will be “in line with historic levels” for the full year, accounting for between 2.3 per cent and 2.5 per cent of retail revenues.

Active customers were up 10 per cent to 396,000, from 360,000, a reflection of the marketing focus on its more loyal customers. Ocado says customers have benefitted from service developments including improvements in on-time or early deliveries, which now account for 95.7 per cent, and accuracy, with 99.2 per cent of items delivered exactly as ordered.

Steiner said Ocado remains focused on improving its service, adding more functionality and improved analytics and personalisation. It is also planning to launch its first mobile site, which will run alongside its mobile apps, which currently account for 35 per cent of transaction and all its growth.

“We are trying to constantly reduce friction for users and make it easier to fulfill a shopping missions where they are buying between 50 and 55 items,” he added.

Ocado says the agreement with Morrisons to deliver its online service contributed £20.3m to gross sales in the first half and is “ramping up smoothly”. Steiner said Ocado is “still happy” working with Waitrose and is hoping to extend that agreement past 2017, when the current deal runs out.

Ocado is also planning to offer its online expertise to other retailers through a “platform-as-a-service” proposition. It is looking to ink the first deals for that towards the end of next year.

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