Wednesday, 16 March 2016

Ocado - Fun With Numbers

From The Telegraph:

Ocado has posted a jump in its first quarter sales but failed to provide an update on its renegotiations with Morrisons or its postponed overseas technology deal.

The online grocer, which also sells Waitrose goods, posted a 13.8pc rise in sales to £252m during the 12 weeks to 21 February.

"We are pleased with the steady progress in our business, maintaining double digit sales growth in a retail environment that remains challenging, and post period end we shipped over 250,000 orders in a single week for the first time”, said Tim Steiner, chief executive.

The average number of orders a week also rose by 16.9pc during the quarter to 214,000. However, the cost of an average basket fell for the tenth quarter in a row by 2.9pc to £111.41*.

So what if the average order size fell? Stick those numbers in a spreadsheet and work backwards, you could say that Ocado's retained its existing 191,600 weekly orders @ £115 each, and added another 22,400 @ £83.

This might well be an example of price skimming, i.e. early customers are prepared to place larger orders, so if Ocado then drops its delivery charges, it can gain additional customers for whom it is worthwhile placing slightly smaller orders. As long as the new smaller orders are still profitable, then good for Ocado.

* I'm not sure that's even true. In September 2014, Reuters reported as follows:

British online grocer Ocado reported gross retail sales rose 15.5 percent in its fiscal third quarter but average order size fell as competition increased in the business. Gross sales rose to 218.5 million pounds ($354 million) in the 12 weeks to Aug. 10, compared with a rise of 15.6 percent in the first half, while average order size fell 1.7 percent to 111.64 pounds.
On a related note, Her Indoors mentioned recently that Tesco have higher delivery charges depending for more convenient delivery times. My son (who is good as spotting these things) pointed out that this was just like airline tickets - very early and very late flights are much cheaper. I inevitably added that this was a pure rental charge.


Bayard said...

"I inevitably added that this was a pure rental charge."

How do you know they are not discounting the earlier and later deliveries, like the airlines in that the expensive price is The Price and the cheaper prices are discounts on it. You've argued often enough that the airlines don't put their prices up during the school holidays, but discount them at other times.

It would certainly make economic sense to discount the less popular delivery times. It takes the load off the more popular times, thus reducing the standing costs and persuades people who might not otherwise use the service to patronise it.

Mark Wadsworth said...

B, fair point. Maybe the people flying or taking deliveries at oncovenient times are paying no rent or even receiving a discount, i.e. the services are provided at a los

DBC Reed said...

BTW Well known monetary nutter Martin Wolf ,who proclaims "strip banks of their power to create money", is today banging on about land taxation in his FT op-piece on Budget: "Osborne is caught in traps of his own devising ".Mad young thing!

L fairfax said...

If you sign up with these companies and not use their services, they often give you vouchers to use them. So you can get £20 -service charge to have your food delivered to you.

Mark Wadsworth said...

DBC, yes I read it.

LF, good plan, but you can only do it once or twice a year. So you'd have to sign up with various supermarkets and rotate your orders.