Ocado halts expansion of automated facilities as demand for online grocery subsides

Online grocery giant Ocado has told its investors that it is halting its expansion plans in another sign that the demand for online grocery is cooling down.

Investors were warned that the construction of more automated distribution centres scheduled to open in 2024 and 2025 would be delayed.

“We’ve taken the decision to pause the north-west and south-east CFCs,” chief financial officer Stephen Daintith told the Financial Times.

“That may change, it’s a pause not a stop, but we think it’s a sensible thing to do given the surplus capacity we have today.”

The move from the company means the sales capacity of Ocado Retail, which is the joint venture with M&S, will now hit £3.9 billion in the medium turn instead of the £4.5 billion it had previously planned. Sales last year reached £2.3 billion.

Ocado had previously warned it may not be able to accelerate a capacity expansion programme that it had initially planned after its existing facilities could not be ramped up fast enough to capitalise on the pandemic boom.

However, as the pandemic has eased and shoppers have returned to stores, Ocado expects sales to fall this year for the first time in its history.

This comes despite the fact it has opened new warehouses in Essex, Bristol and Luton.

The group reiterated that it did not intend to sell its half-share in Ocado Retail to M&S to raise funds.

“That is not an option we are seriously considering,” said Daintith. “Right now at the reduced margins . . . would not be a sensible time to sell that business.”

Some analysts are debating whether the slowdown in the UK market may affect the company’s international solutions business where it sells tech to other retailers.

It has also agreed to build more than 60 customer fulfilment centres (CFCs) for Kroger in the US, Aeon in Japan and most recently Lotte in South Korea.

“If [Ocado clients] are unsure where online demand is going and about the profitability of CFCs, it is surely safer to stick to in-store picking,” Andrew Gwynn at Exane BNP told the Financial Times.