Ocado experienced a significant share price drop following critical remarks from its key US retail partner, Kroger, regarding the effectiveness of its robotic warehouses. Despite this setback, Ocado Retail, the joint venture with Marks & Spencer, reported robust revenue growth for the financial year 2025.
Key Takeaways
- Ocado Retail saw a 15.5% revenue increase to £2.83bn in FY25, driven by a 14.6% rise in active customers.
- US partner Kroger expressed concerns about the performance of Ocado’s automated Customer Fulfilment Centres (CFCs), particularly in lower-density areas.
- Kroger is conducting a site-by-site analysis of its Ocado-powered facilities, potentially leading to closures and a shift away from large-scale CFCs.
Ocado Retail’s Financial Performance
Ocado Retail announced a strong financial performance for the extended 70-week period ending April 6, 2025. Revenue climbed by 15.5% to £2.83 billion, propelled by a 13% increase in weekly orders on ocado.com. The active customer base grew by 14.6% to 1,177,000. Gross profit also saw a healthy increase of 14.1% to £952 million, though the gross margin saw a slight dip from 34.1% to 33.7% due to strategic price investments and absorbing food price inflation.
Adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) surged by 78.3% to £53.5 million, a significant improvement from £30 million in the previous year. This growth was attributed to increased customer numbers, optimised marketing, effective supplier negotiations, and reduced utility costs. The company also reported an improvement in pre-tax losses, reducing them from £121.7 million to £60 million.
Kroger’s Concerns and Strategic Review
The positive financial news for Ocado Retail was overshadowed by concerns raised by its US partner, Kroger. Kroger, which has been a strategic partner since 2018, had planned to build 20 robotic customer fulfilment centres across the US with Ocado. However, only eight are currently operational, with two more in development, a rollout significantly slower than anticipated.
During an earnings call, Kroger indicated it was ‘taking a hard look’ at its options regarding the existing sites. The US retailer plans a site-by-site analysis, noting that while facilities in high-density areas are performing well, those in lower-density regions are experiencing weaker customer uptake. Kroger is evaluating all its facilities to boost profitability and cut costs, which could result in the closure of some automated centres. This has led analysts to believe Kroger may pivot away from large CFCs towards leveraging local stores for order fulfilment.
Market Reaction
In response to Kroger’s comments, Ocado shares fell sharply, dropping 11.3% in early trading. This decline reflects investor anxiety about the pace of new site openings for Ocado’s technology partners and a perceived lack of new technology deals. The market sentiment suggests a potential shift in strategy for Kroger, which could impact Ocado’s future growth prospects in the crucial US market.
Sources
- Ocado Retail reports 15.5% revenue growth in FY25, Yahoo Finance.
- Ocado shares nosedive after US partner warns on robotic warehouses, This is Money.
- Ocado Retail posts strong revenue growth due to higher orders, Retail Gazette.
