Ocado halts expansion as online demand disappoints

British online supermarket Ocado is putting its expansion plans on hold. The construction of two new distribution centres will not go ahead for now, as there is too much capacity after a disappointing evolution in demand.

Demand overestimated

For the first time in its history, Ocado is having to scale back its expectations. As it could not sustain the spike in demand during the pandemic years, it has to put its expansion on hold. Even in the medium term, the online grocery service is adjusting expectations downwards: the company is now assuming 3.9 billion pounds (4.5 billion euros) in sales, instead of the previously anticipated 4.5 billion pounds. Last year, revenue was 2.3 billion pounds.

Plans to open additional distribution centres in 2024 and 2025 are now postponed. Given the current overcapacity, this is the sensible choice, CFO Stephen Daintith told the Financial Times. Ocado, which entered into a joint venture with Marks & Spencer in 2019, was unable to keep up during the corona pandemic and – conversely – accelerated too much afterwards. Despite slowing demand, three new warehouses still opened this year in Bristol, Essex, and Luton.

Besides its own retail operations, Ocado is also positioning itself internationally as a technology partner for other supermarket chains. In 2021, for example, the company struck a deal with Auchan subsidiary Alcampo to build a robotised warehouse and further develop its online operations. Globally, Ocado has about a dozen partners, but the question is whether those customers too will now not scale back.