Ocado Retail – the online supermarket run as a joint venture between Ocado Group and Marks & Spencer – increased active consumers by 5.9% in the fourth quarter, which it attributes to shifting its marketing strategy to focus on customer acquisition and retention.
CEO Hannah Gibson says the retailer has “materially improved” customer retention compared to the same quarter in the previous year due to “better targeting and a better customer experience for their first few shops”.
“Through our marketing initiatives we have driven our base of mature customers to the highest it’s ever been, up 9% on the year,” she adds.
In Q3 Ocado stated the number of “mature” customers – those who have made at least five shops at Ocado.com – had grown by 6.6%.
The increase in mature customers over the past six months comes despite the supermarket slashing its marketing budget by £7m in the first half of the financial year. In July, Ocado’s CFO Stephen Daintith said the drop represented an “optimisation of its marketing channel mix”, and argued the saving would be reinvested “into increased voucher offers to attract new customers”.
Dantith said the maximum voucher Ocado would offer to entice a new customer was a 25% discount, as the supermarket was reluctant to “[go] heavy on incentivisation”.
The latest results demonstrate an evolution of the strategy the brand began implementing in January 2023, which saw it transition its marketing efforts to prioritise the acquisition of consumers with the potential to remain with the brand long term, rather than chasing new customers by offering discounts on individual shops as Daintith suggested.
Instead, the brand claims consumers are benefiting from lower prices more generally, through price matching baskets to Tesco. That scheme, which came into play in March, has led to satisfaction scores on value improving “materially”.
YouGov’s BrandIndex, which tracks customer sentiment around brand health measures, demonstrates that net value perception of the Ocado brand on 15 January stood at -5.3. This time last year that stood at -5.9.
During Q4 average orders per week on Ocado.com grew 4% year-on-year to 393,000, “reflecting the increase in active customers”. The average basket value was up 2.7% year-on-year while overall basket size fell by 4.5% to 44 items. The company says that was driven by “the unwinding of pandemic shopping behaviours and the cost of living crisis”.
Gibson believes that customer behaviours have normalised post-Covid in a manner that benefits online retailers. She says Ocado’s focus on its ‘Perfect Execution’ strategy around deliveries is vital for customer retention.
Average selling price (ASP) increased 7.9% year on year, which the company claims reflects “Ocado’s continued focus on improving pricing relative to the market”.
Additionally, Gibson attributes the broadening of Ocado’s product range – with nearly 50,000 products live on the site – as part of the reason for increased customer retention.
The number of M&S products on its site is now around 90% of the full range it offers in stores; she also cites “even more Ocado own brand, new and unique products being introduced”.
Ocado’s retail revenue increased to £609.4m in the 13 weeks to 26 November, up 10.9% against the same quarter last year. That represents a fourth consecutive quarter of growth, and a “significant increase” over the 7.2% reported in Q3.
During the peak Christmas trading period between 20 to 24 December, the brand reports an overall sales increase of 7%, while the number of items delivered – which it terms ‘eaches’ – were up 3%, including a record number of items delivered on 23 December.
The company says its trading performance and focus on costs has translated through to its bottom line, returning to positive EBITDA for the full year.
For the full year, the brand’s retail revenue was £2.4m – up 7% against the previous year.
Gibson says: “We are starting the new year with over 1 million active customers. Over the next 12 to 18 months, we will be embedding the foundations we have laid this year and raising the bar again for online grocery shopping. We have a really strong platform to build on in 2024.
“The numbers demonstrate the progress we have made this year and I am excited there is so much more to go after”.
Ocado has been working hard to build a “really strong foundation of creative effectiveness within the business”. In July, Ocado’s head of brand advertising Sarah Emerson told Marketing Week: “We work as a collective across the customer function to look at all areas, to make sure that actually, everything is pulling together and working as hard as it possibly can to achieve our commercial objectives.”