Ocado sees its shares decline 9%

27 June 2011 Last updated at 16:07 GMT Retail expert Bryan Roberts says Ocado is struggling to keep up with the pace of demand

Online grocery delivery company Ocado has seen its shares slump 9% despite reporting its first half-year profit.

In the six months to 15 May, Ocado made a pre-tax profit of ?200,000, compared with a loss of ?6.7m a year earlier.

Its sales for the half-year rose 21% to ?297m, although this was a slowdown on the 25% growth in the first 12 weeks of the period.

Ocado also announced a deal to sell products supplied by French supermarket group Carrefour.

These French items, to be called Reflets de France, will be trialled from 14 July.

They will be sold in addition to Ocado's current range of Waitrose lines.

Ocado said its profits were limited by its operational capacity, which it was now continuing to increase.

Its net revenues for the first six months of the year totalled ?277m, up 20% from ?230m a year earlier.

At one point Ocado's shares had been 12% lower, before recovering some losses to close down 9% or 17 pence at 169.9p at the end of trading on Monday.

Investment drive

Chief executive Tim Steiner said: "We are delighted to announce our new supply partnership with Carrefour, an important development in our strategy to offer the broadest and most diverse grocery range to all our customers in the UK."

Ocado has not released financial details of the Carrefour deal.

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It is hard to see how the brand can compete with leading retailers over the long term in its current guise”

End Quote Anna Smee Hundred Consulting In April, Waitrose announced that it would be expanding its online presence, which many retail analysts say will likely take orders away from Ocado.

Starting from 1 July, Waitrose will be able to deliver direct to its customers from any of its stores within the M25 around London.

Previously Waitrose had been prevented from doing this under an agreement it had with Ocado.

Waitrose already delivers direct from most of its stores outside the M25.

Ocado said it was now planning to spend ?80m over the next two years to increase its capacity up to 180,000 orders per week.

It added that it was continuing to see strong demand from its customers, but while the number of orders it receives was rising, there had been a slight decrease in the average order size.

Failed strategy?

Retail analyst Anna Smee, of Hundred Consulting, said Ocado's results showed "a degree of resilience in the current economic climate".

Continue reading the main story However, she added that the company still faced an uncertain future.

"The fundamental question mark above Ocado is that it has failed to lay out a clear long-term growth strategy," she said.

"Online shopping is now widespread but so, unfortunately, are the major food retailers that offer it, not least Waitrose, which could prove a major threat in core markets as the non-compete agreement comes to an end."

Ms Smee added that Ocado needed to explore growth options, such as expanding across the UK or oversees.

"It is hard to see how the brand can compete with leading retailers over the long term in its current guise," she said.

Ocado was founded in 2002 and floated on the London Stock Exchange in July last year.

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