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Ocado Drops as Online Consumers Cut Grocery Spending

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(Bloomberg) — Ocado Group Plc shares fell after the online retailer forecast a decline in earnings from its joint venture with Marks & Spencer Group Plc in the first half, reflecting tight competition for grocery spending in the UK.

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Revenue rose 0.3% in the fourth quarter, below Ocado’s prediction of mid-single digit sales growth. Ocado said that it expects earnings to fall as well as customers’ basket sizes in the first half of fiscal 2023. The stock fell as much as 11% and has lost about half its value in the past year.

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The online joint venture is struggling as shoppers shift back to visiting bricks-and-mortar supermarkets and the cost-of-living crisis pushes more customers toward discount grocers. Shoppers are placing smaller food orders as they’re under pressure from prices rising on groceries, energy and fuel.

Customers are shopping less frequently online as habits normalize following Covid lockdowns. The average purchase at Ocado is £117 ($143), down 1.3% from a year earlier. Ocado said that there has been a 7.6% increase in the average selling price per item, given inflationary pressures.

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The business is also battling the same pressures that have tightened margins at mainstream grocers Tesco Plc and J Sainsbury Plc with higher costs for energy and labor while also investing in trying to keep prices down for shoppers. 

The joint venture expects full-year revenue growth for 2023 in the mid-single digits and marginally positive Ebitda. 

Former Chief Executive Officer Melanie Smith left last year after warning that revenue would be impacted by the cost-of-living crisis. Hannah Gibson took over as CEO in September. 

Food inflation climbed to a new high last month, leading consumers to spend a record £12 billion on groceries even as sales by volume fell. More than 90% of British consumers are feeling concerned about the cost of food, and they’re buying more own-brand goods and cooking in larger amounts to try to tackle higher costs, according to data from Barclays. 

(Updates with full-year forecast in sixth paragraph)

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