It’s no secret that the rise in living costs is causing people to be more careful with their spending. However, even retail analysts were surprised by Ocado’s announcement of a record annual loss of £500 million along with the news it is putting its planned distribution centres in the north-west and south-east of England on hold.
You only need to watch British television adverts to see that the UK supermarkets are at war with each other. Large chains regularly cite their rivals, stating that their basket of goods is cheaper than others on a like-for-like basis.
In any retail battle, there will always be outright winners and losers, and yesterday’s announcement that the online grocery retailer had tripled its annual losses proves that Ocado is some way from the winning side. Below, Nick Drewe, the Retail Expert at online discounts platform, Wethrift, offer us his thoughts on the Ocado’s woes and the headwinds it faces:
“Firstly, Ocado’s core challenges are the changing consumer shopping habits and behaviours post-pandemic. Ocado saw significant success during the pandemic, as demand for online food deliveries boomed amid the lockdowns due to consumers’ fear of visiting supermarkets. However, the market has since seen a shift as the pandemic ended, and shoppers have returned to in-store shopping.
“Customer sentiment has also negatively impacted Ocado, as consumer perceptions are that the brand’s products are priced highly. With the continued cost of living crisis, and UK grocery prices rising by 17.1%, shoppers are opting for more budget-friendly competitors, such as Aldi and Lidl, hence their rapid growth. Ocado isn’t positioned as a discount brand, ultimately making it challenging for them to compete against competitors.
“This perception amongst general consumers could also negatively impact Ocado’s £750 million joint venture deal with Marks & Spencer, who are also perceived amongst consumers to be a premium-priced supermarket. This may prove challenging in the future amidst shoppers attempting to tighten their spending in line with the cost of living.
“In a bid to challenge perceptions of the brand, Ocado’s CEO announced on the 1st March that they will be price comparing 10,000 ‘like-for-like’ products as seen on Tesco’s website. It will be interesting to see if making direct price comparisons will impact Ocado’s financial situation.
“However, another challenge that Ocado faces is that supermarkets like Tesco are opting for the same strategy, cutting prices across selected items and making price comparisons against their budget competitors, such as Aldi and Lidl. In a market where all competitors are opting for a price comparison strategy against the budget supermarkets, this will make it even more difficult for Ocado to compete against them.
“As more consumers continue to search for cheaper alternatives, as well as online retailers having to contend with the rising demand of online discount codes, I think it could be difficult for supermarkets like Ocado to bounce back amidst the current economic climate in the UK.
“Ultimately, they are unlikely to see the same levels of success as they experienced during the pandemic due to the slowing down of online shopping. As well as this, shoppers across the UK are tightening their belts and attempting to keep spending down throughout the continuing cost of living crisis.”
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