What to look out for in Ocado Group’s interim results amid its ongoing M&S dispute

The retailer has endured several rocky years, which its five-year share price figures attest to. After reaching a high in 2020, Ocado Group’s shares have slumped 50% in 2024 alone, seeing it demoted from the blue-chip FTSE 100 index.

Capacity constraints through 2020 and 2021 hampered Ocado from capitalising on the surge in online grocery during the pandemic when customers flocked to the more established grocers such as Tesco and Sainsbury’s, which were able to be more flexible in fulfilling orders.

The subsequent cost-of-living crisis and surging prices saw customers shy away from online shopping in favour of chasing lower prices at supermarkets and with the discounters.

The group’s Solutions technology arm has also endured some turbulence. The Ocado Smart Platform (OSP) now has 13 international partners and has achieved some milestones in 2024 with the opening of new customer fulfilment centres and expanding its tie-up with Japanese retailer Aeon to a fourth warehouse.

However, it has also experienced some knocks, most notably the announcement in June by Canadian giant Sobeys that the opening of its fourth OSP warehouse had been paused. 

Bernstein analyst William Woods slammed Ocado as “less jam, more tomorrow” in a note to investors downgrading the business to underperform. He added: ”The jam tomorrow story is now less jam, more tomorrow - CFCs have been paused or pushed back, refinancing is looming, Kroger is stuck, and they will need more cash.”

City consensus figures for Ocado Group cover the full financial year, which the interims will contribute to.

Ocado full-year results City consensus (£’000)

Fighting back

As food inflation has slowed in 2024, Ocado – particularly its retail arm, a 50/50 joint venture with Marks & Spencer – has been fighting back.

Ocado Retail enjoyed a strong start to the financial year. Revenues rose 10.6% to £645.3m and order volumes jumped 8.1% to 242.1 million items in the quarter to March 3.

Average weekly orders also jumped, up 8.4% on the comparable period, while active customers rose 6% to over 1 million – the highest since the pandemic.

At the time, Ocado Retail chief executive Hannah Gibson emphasised that the etailer had been working on “enriching our product range with the strong growth of M&S grocery lines” and “delivering improvements in our proposition for customers”.

With growth across the grocery market sluggish and volumes as important a mark of performance as sales, the City will be looking closely to see whether Ocado can continue to improve in these areas for the half year.

Market share growth

Ocado has been performing well in market share terms. It has been the fastest-growing food retailer for the last four straight months, according to Kantar grocery market share data.

Kantar head of retail and consumer insight Fraser McKevitt said while Ocado’s has been an “outlier”, it has been growing market share outside its London and south of England heartlands.

While Ocado’s model means it will never have a massive share of the overall grocery market, continued growth in orders and customers will help build the narrative that this is a business on the rise.

It will also emphasise a consumer shift away from the downtrading seen during the cost-of-living crisis and may point to happier times ahead for consumer spending power.

Boardroom bust-up?

What the M&S proportion of Ocado Retail sales is will be a focus and leads to one of the business’ major talking points: the future of the Ocado Retail joint venture.

For months, there has been evidence of a rift between Ocado and M&S over the contested final payment set out in the agreement between the two brands in 2018.

In February, Ocado Group boss Tim Steiner said he wouldn’t hesitate to sue M&S over the £191m it owes. Last month, M&S boss Stuart Machin fired back, saying Ocado Retail had failed to meet “binary” earnings targets on which the paying the full, final instalment was contingent.

While Gibson and her team won’t want to get into management’s behind-closed-doors discussions with M&S, the state of the relationship between the two brands and the effect that will have on the joint venture’s future will likely command interest.

Gibson may also face questions, given that September will mark her second year at the helm.

While no one can question her mastery of the technological and technical sides of her brief, analysts will want to see her demonstrate a longer-term vision for growing Ocado Retail.