Ocado Group plc (OCDO) Earnings Call Transcript & Summary

Good morning, and welcome to Ocado Analyst Call. I will hand over to Chief Executive Officer, Hannah Gibson. Please go ahead.

Good morning, everyone. This is Hannah Gibson, CEO of Ocado Retail. I am joined this morning by Mat Ankers, CFO of Ocado Retail. The key message from today is that we're back to strong volume growth as our strategy continues to deliver and lead results to underpin our guidance for the year ahead, and more on that shortly. This growth has meant that by the end of February, Ocado Retail's market share of the online channel was 13.5%, up 0.7% over the year. Our second half and Q4 results. Last year, we focused on big shopkeepers through our Perfect Execution program, making sure that every element of our customer proposition and our operating model is at its best. In 2024, we retained this focus whilst working to raise the bar on our core pillars of unbeatable choice, unrivaled service and reassuringly good value. We've hit the ground running post Christmas trading, and I'm pleased with what we delivered in this quarter. Our improved proposition and continued acquisition is driving growth. In the first quarter, we achieved volume growth of 8.1%, a further step-up on the 4.8% achieved in the final quarter of last year. This volume growth was the key driver of revenue growth of 10.6%. Higher volumes reflect our continued progress attracting new customers and improving our proposition with existing customers. We ended the quarter with 1.02 million active customers, up 6.4% on the prior year. Basket size in terms of number of items remained stable year-on-year. Customers are responding well to our ongoing focus on choice, on service and on value, an important step of our assets once again. We enriched our range with the continued expansion and growth of the M&S core grocery lines. We also launched our Makers Market, spotlighting incredible small suppliers. And our model means we can do this uniquely well given our large range since we are less limited by shelf space and store retailers. We improved both spot availability and also product capability, including implementation of Ocado Group's new OSP forecasting engine. And we continue to invest in value, which remains a top priority for our customers right now. The investment included lowering the price of another 1,700 products, as plus of our big price drop at the start of January, our fifth round of price cuts since last June. We've also further built out our Ocado own brand range and maintained our Ocado price promise, which price matches a leading 10,000 products at Tesco. As a result, our average sales price growth was significantly below the market, up just 2.2% year-on-year. Due to these ongoing efforts on price, our customer perceptions of value have improved materially over the same period. Overall, our performance in quarter 1 shows a laser focus on our strategy is leading to progress. And as we move to the rest of the year, we look forward to building on this progress, but imagining the fact that in later quarters, we'll begin to lock the initial period of acceleration achieved for our Perfect Execution program last year and we'll continue to invest in price. With this in mind, today, we reiterate our full year guidance to mid-high single-digit revenue and an underlying EBITDA margin of around 2.5%. We made a strong start, and we're looking forward to driving further improvements and continuing to deliver for our customers this year. Now let's go to questions.

[Operator Instructions] We take now the first question from Luke Holbrook from Morgan Stanley.

I've got a couple of questions. The first is just on active customers, which were up 6.4% year-on-year. I was just wondering on how that's fared during the quarter. It looks like on Kantar, it might have been more back-end loaded towards the end part. And then the second question, just on the average selling price. You said it was up 2% year-on-year, which was significantly below the market. Just interested to hear whether you believe this is sustainable as we go through this year or whether the 5 price cuts you've made over the past year are temporary in your eyes?

Thanks, Luke. In terms of customers, as you say, were up 6.4% year-on-year. You asked about the shape of the quarter. I think, as I say, if the potential question is how will this play out. We expect to kind of continue broadly on this trajectory throughout the rest of this year. I mean if we go into the Christmas period, as I've said in Q1 results, we can start early at Christmas. We've got lower customers who book their slots well in our branch. So you would naturally see that's quite a common process, that, that period was slightly less the first period than the second 2 periods. But also, as we know, Kantar can sometimes get the errors of margin kind of wrong, given the smaller sample size as well. So I think what you see is reflective of whether we continue to expect the rest of the year to play out. The second question in terms of ASP. Yes, you rightly pointed out, we're at 2% at the moment. We've made a number of price cuts. That said, value continues to continue to be a focus for us this year. We want to continue to make progress on that. So [indiscernible] we're not stopping there. As ever, we're still seeing inflation in some categories. We're seeing inflation in others. Overall, from a market perspective, no one expecting a market to get to deflation. That said, I expect to see probably a slight softening as the year goes on.

We'll take the next question from Andrew Gwynn from BNP Paribas.

Two questions. Firstly, I think you called out on consumer trends. And then, secondly, the new customers you're acquiring. Obviously, during the pandemic, you acquired quite a lot of customers. Are those customers returning? Or are they sort of totally virgin customers, maybe even completely online?

Thanks, Andrew. In terms of consumer trends, I think if we compare it year-on-year, we could definitely see compared to the previous year, consumer confidence has improved outside of [indiscernible], our places last year. And actually, what we're starting to see, what's urging, I think, results in terms of basket sizes remaining pretty stipple year-on-year. And we're starting to see actually, in terms of our basket mix and what's going on within consumers, see a lot of growth in terms of kind of core growth areas. Whether it be chicken, whether it be salads, whether it be ingredients, et cetera. So actually consumers are not more kind of core growth reliance back in our basket again, which is good to see. We're also seeing, given the large range we've got, is on what's been interesting, especially in this period, the health and wellness continues to be a big theme for our consumers. And actually, we know that means different things to different people. So whether that be you're into [indiscernible], whether that mean you're into light color, whether it's light pressing, whether it's alcohol, we do have a much bigger range and elsewhere, and it allows us to play into all the different missions irrespective of who you are as a consumer. So I think we're continuing to see a pretty confident. And as said, there's always kind of other caution in terms of consumers still coming out across the living crisis, and we're continuing to see consumers wanting to shop from the broad range that we've got. In terms of new customers, it's a good question. As you know, we just turned away a lot of consumers as we went through kind of March, April, May of 2020. We saw -- we definitely kind of probably 2 years ago now almost, so 2 years, 18 months ago, really kind of went back to these customers, be it on more capacity. I'd say where we're at now, though, is actually getting more new customers into the business. It's less about reactivating those previous ones. We've obviously kind of gone after those earlier on in our journey. Now it's about encouraging new customers to Ocado. And actually, what you see in terms of switching data, this is no longer just about searching consumers who are already shopping as well online. It's consumers who will be shopping for a mix of different other retailers. Some shopping in store. And it's pretty unusual these days to find a consumer who's never shopped online. It's totally [indiscernible] online. That's not what we are seeing anymore, but it's a question of are they frequent customer or not. And what we're seeing is that more than ever, we're getting -- we're back getting high number of customers, getting through that first shop, getting stickier. So it's not just about converting them, it's about converting them to more customers while we're seeing improving trends from that perspective, too. I hope that's helpful.

Yes, that's very clear. And actually, just connected to. Do you think they're connected? So as consumers feel a bit more confident, less need to shop ground and therefore, a bit more inclined to do some online shopping?

One of the -- I mean I think one of the things that we hear again from customers is because we've got this larger range, you'll literally have them say things like, "I can get everything under one roof." And that's why they will continue shopping with Ocado. And we actually see that I'll shop with you at Ocado, [indiscernible] saying that I shop with Ocado talk [indiscernible] that means I don't have to go to multiple different places to get everything that I need. I can get an order in one go. It's super convenient for me. So we do find that, that helps consumers in terms of our broad offering as we improve our value perception, as we improve the value we're only getting to customers as well, that only improves as well.

We'll take now the next question from Wassachon Udomsilpa from RBC.

So in the release, you talked about effort enriching product range. And could you perhaps provide us a bit more color on that? Is there room for further increase in M&S range to the platform, including more from M&S fresh categories. Any update on that would be appreciated.

Yes. Thank you. So just as a starting point, we have a -- for the last stage of any online growth, and the question is kind of what you do, that range almost 50,000 items. Exactly as you point out, over the course of last year, we've been improving our M&S range. And as reported at the end of the full year results in January, we're up about 90% of the addressable range online. We're continuing to add to that. And that is everything from ingredients, whether it be Asian cooking ingredients to the new range, the range that M&S came out last week. Literally, last week, I also got the freshest, newest [indiscernible] as well. So it gets correlated into what is fresh and what is seasonal and what is British, too. So we're continuing to up the M&S range. We've got almost vast majority now with the core lines. And actually, the focus of the teams across M&S and Ocado is making sure that we're launching, we're buying with those new amazing ranges that come online or come in store, we're getting them online as well. And so really kind of that's now the more the ongoing focus, is helping to make sure that their customers and M&S funds, they're shopping online, get access to what we consider amazing new products. There's new ranges coming out, so we're continuing working with the teams on that. So an M&S perspective there as well. But also more broadly, in terms of our overall kind of commercial strategy, we're definitely focused on those challenging brands, and you will have seen that we launched our Makers Market about a month ago, which is really showcasing and highlighting some new -- some of our new brands coming through. And just to name a couple, Tom Parker Creamery, amazing dairy products. We've got LEAF, which is grown in vertical farms. It's a fantastic, super fresh solids as well. So we're really getting those M&S products, which are both the core, the M&S innovation, which is fantastic to see as well, but also that innovation in new products on the talented brands as well. And we know that when customers find any specific items that they cannot get anywhere else, that's what really drives loyalty to Ocado. So it's finding and discovering these new items as well as hearing these fantastic M&S new items, too. It's a combination of those things that's really going to drive loyalty.

I take now the next question from James Lockyer from Peel Hunt.

Three questions for me, please. Just firstly, some math from the numbers. It looks like the average orders per customer increased by 2% year-over-year, but were flat quarter-on-quarter. As I understand, new customers obviously tend to shop less frequently than mature customers. So I guess could you give us some color on how your mature customer profile mood changed within Q1? And also if there's any seasonality, say, with Christmas, if there's a spike of new customers as a percent of [indiscernible], for example? Second question. This time last year, you signed a retail media deal with The Trade Desk. Could you provide any insights on how that deal has gone so far? And any item how you see retail media playing as this partner model given third parties are starting to disappear? And then, finally, a specific question on chocolates, please. The longest time the price of cocoa is round about $3,000. But over your first quarter, it's tripled to nearly $10,000. It looks like a bad harvest. How should we think about this? And when do you think this might start to reverse? And if you can provide color what's forcing your sales on chocolate base?

A topical week for that question. Thank you. Okay. So let's go back to your first question now in terms of customer frequency. Overall customer frequency, and actually, if we think about mature, our mature base is actually pretty stable year-on-year. We are -- so that's a good trend. That's exactly what we want to see as you grow your base, as you grow your mature base and maintain, that frequency is exactly what we're going after. So actually, in terms of consumer shopping, that remains pretty static. In terms of our newer customers, we see slight improvement in terms of frequency, slight improvement in terms of baskets as well from the year-on-year perspective. So actually, we're glad to see a good lot of customers kind of continue to come through to a mature base. So I think we're happy with the trends from that perspective. From your second question in terms of retail media, it's a great one to ask about. So you point out, we did a deal with The Trade Desk. In terms of retail media, there's a couple of different buckets of how we think about this. There's on-site retail media, there's offsite retail media, and The Trade Desk is obviously part of our offsite proposition. But it's one part of it. So we're continuing to work with them in terms of offering opportunities for other brands to utilize our data, to upsize elsewhere. We're [indiscernible] a bit, so we're starting to ramp up further in the space. I'd still say it's early days, but there's definitely opportunities available. And in terms of the broader retail proposition, it's an interesting one. Because although people think of retail media in terms of the buzzword, we've actually been doing it for the last 15 years or so. It's not necessarily new to us, and we work with some of our largest brands that are actually across the whole fleet of our lines to offer a unique range of tools, actually, although we've got -- you just think about sponsored products like [indiscernible], we also have a whole range of tools that we divert over the years to target customers, whether that be coupons, whether it be gifts at checkout work. So there's a huge suite of offering that we provide to our customers. I think about it less retail media. I think about it more as tools to grow our brands. And that's absolutely our focus. We're working with lots of our suppliers on how we can optimize that for them sharing more data, et cetera, and to make sure that we are front on this as well. Then to your third question on chocolate. So yes, cocoa, we've definitely seen a lot of price increases at cocoa, exactly the reasons that you call out. I'm not an expert in the world of cocoa. As everybody says, we expect to see it peak at some point. Is it at that peak yet? Well, we're not entirely clear, if I'm honest. I think we'll continue to see our [indiscernible] area. I expect it to remain high for some time. Heading into the Easter week now, we've actually been really focused on pricing, making sure that we are competitively priced for our consumers on those other top bets. But I just don't think it's likely to go away any time in the short term.

We'll take now the next question from Tin Stormont from Numis.

It's Tintin Stormont. Just one question for me, actually. Hannah, you mentioned that customer perception and value has improved markedly for your customers. Could you just share how -- more color on that and sort of kind of how you track that?

Yes, actually. Nice question. So we track Net Promoter Score across the business more generally. So we're really focused on our overall customer Net Promoter Score across the whole team because that's week on week. But within that, we look at the core drivers. So where we're doing in terms of NPS from a range perspective, from a service perspective and clearly, from a value perspective. I mean, in value, there's a few different buckets. That is overall value, which is baked into a service. But also the price of charging, but we also look at the underlying NPS of the price, the customer, the prices that we charge our customers as well and perceptions of that, too. And we've seen that increase 10 percentage points year-on-year, and we can see that being driven initially introduced to kind of price promise. We definitely saw it improve upwards. We've continued to reaffirm, to tell a story about Ocado's price promise to customers. As we've done that, that has improved it. But also we see with everyday price drop that we do as we're adding value back to our consumers as well, that this continues to improve the price perception as well.

We'll take now the next question from Emily Johnson from Barclays.

I've got 2 questions, please. The first one is just you touched on the new OSP forecasting engine. Can you talk a bit about your early experience of using that? Are there any KPIs that you're able to share in terms of what sort of impact you've seen, like delivery, smart availability, et cetera? And then the second question is, can you touch on how growth is developing among the Zoom offering? Are you seeing similar trends to the overall Ocado Retail group, i.e., growing active customers and expanding range? Or is there anything different to call out there at the Zoom sites?

Yes, please, happy to expand on that. So your first question on OSP forecasting. I should just separate 2 aspects of availability, just to make it clear. So the first is around product availability. So we're selling -- making sure we've got enough chicken, enough vegetable, et cetera. And the second is cost availability, so if we've got a lot. So the OSP forecasting engine that we've rolled at was focused on product availability. We've been focused on product availability and lots over the course of last year, and we've seen actually an improvement per se around the kind of 3 to 4 percentage point mark over the last year or so. And that was driven by a number of factors, definitely improvement in terms of forecasting. As we grow, as we balance our network, we've been able to focus a lot in terms of improving it, working with our suppliers on improving availability levels as well. So there's a number of factors there. But absolutely rolling out the new forecasting engine has helped us improve that balance between availability and waste as well. And so we've seen available to go up. Waste come down. So that's actually kind of the -- exactly where we want to be. But there's more to go after. So we're going to do something to work with our suppliers on how we can continue to improve that as well. We've also been working on profitability, last to do that to forecasting. We're working really closely across the Ocado Retail, Ocado Logistics to improve our profit and to help drive growth as well. But in terms of Zoom. So yes, a good question in terms of what we're seeing. We're continuing to see -- we've focused Zoom around London. And we've continued to see in the sites that we've got, i.e., the geographies that we operate, we've seen really strong growth well beyond double-digit growth in our [indiscernible]. The trend will broadly continues to be pretty consistent with what we've seen early on, which is we're continuing to track new customers, who were not necessarily Ocado customer on the platform. That said, we also have a number of Ocado customers who we see using Zoom and Ocado, and they will spend more if they are using both platforms. They are just using the one. So we're continuing to focus on growing it. We'll continue to focus on optimizing our costs in this space, and we'll kind of update you as we've got further growth plans across the [indiscernible].

We currently have no questions. Sorry. Yes, so over to you, Hannah.

Okay. Well, thank you very much for your questions, everyone. That concludes our call. We'll next be giving a trading update alongside the Ocado Group half year results, and that is on the 16th of July. Thank you very much.

Thank you for your interest in today's call. You may now disconnect.