Ocado slashed its marketing budget by nearly £7m in the first half of the year as it wrestles to find the right balance for its use of promotions. It comes as the online supermarket reveals a loss of £289.5m for the period, a drop of 37% compared to the same time in 2022.
Ocado’s budget for marketing dropped from £26.6m to £20.1m in the first half as it looked to cut costs across the business. The retailer’s chief financial officer, Stephen Daintith, put this down to an optimisation of its marketing channel mix and said the saving was reinvested into increased voucher offers to attract new customers. Ocado doesn’t include vouchering costs within its marketing budget, instead placing them within revenue.
Marketing spend as a percentage of revenue therefore decreased to 1.7% versus 2.4% for the same period in 2022.
It’s a balancing act and the team has gone back to the methods we’ve used historically and they’re doing a good job and the retention is strong.
Tim Steiner, Ocado
Tim Steiner, CEO of Ocado, told investors on its earnings call today (18 July) that it has taken its marketing strategy “back to basics” over the last six months. He described Ocado’s current marketing mix as “looking more like it did in 2019” than in the past three years.
The brand’s current focus is on acquisition of customers rather than retention or reacquisition. “It’s a mix between getting the customer to try [Ocado] and so part of that is incentivisation,” he said. “We are not going heavy on incentivisation though. We’ve never gone heavy on that.”
He pointed out that the maximum voucher Ocado will offer to entice a new customer is a 25% discount and that it has been doing a bit more of this during the “nursery journey” to get first time customers through to their fifth purchase when they tend to become firm buyers.
It’s a balancing act, he admitted, in making sure any use of vouchers brings in the right customers. Larger vouchers may bring in 20,000 customers but if only a fraction of them go on to be regular users of Ocado then that has been wasted money, he said.
“It’s very easy to give away pound coins at the end of the street. It’s very quick to find a queue. But when you now want to charge for your services, they’ve all disappeared,” he said. “It’s a balancing act and the team has gone back to the methods we’ve used historically and they’re doing a good job and the retention is strong.”
Ocado hailed the “good progress” it has made, with these decisions leading to a 5% increase in revenue for its retail operation and a 10% growth in customer numbers.
The online supermarket put the £289.5m loss down to £77m in exceptional costs accrued over the first half of 2023. Ocado has been looking to cut costs across the business in recent months. In addition to reinvesting marketing budget elsewhere in the business it announced in April it would close its oldest warehouse in Hatfield putting 2,300 jobs at risk. The company last made a pre-tax profit seven years ago.
More positive news came from the £56.2m increase in revenue and small increases in average orders per week (up 4%) and average basket value (up 1.5%). It also increased its active customers to 959,000 up from 867,000 in the year prior.
Gross profit was up by a smaller 1.2% because of its price promise to customers that looked to absorb much of the price increases caused by inflation over the last 12 months.
Steiner also talked of his reluctance to go big on media spend which he described as “crazy expensive” due to the “stupid” venture capitalist money that flooded the market during Covid in an effort to chase the at-the-time booming rapid delivery market. “Trying to do your normal business was hard because of those companies buying all that space,” he admitted before claiming that Ocado is now “20 times” the size of rivals Gorillas and Getir combined.
Earlier this month, Ocado’s head of brand advertising, Sarah Emerson, told Marketing Week about its desire to make the brand more “relatable” through its advertising, while also looking to increase the frequency with which people shop by showcasing the breadth of its offer.
“The ultimate objective is we want Ocado to feel more ubiquitous and relatable to more people,” she said. “We want more people to come in and trial. But we also want to inspire existing customers to continue to shop with us more frequently and add more items to baskets.”