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Ocado Retail fire cost 35 million stg in lost revenue

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By Reuters
UK's Ocado Retail lost 35 million stg in orders from warehouse fire
UK's Ocado Retail lost 35 million stg in orders from warehouse fire   -   Copyright  Thomson Reuters 2021
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By James Davey

LONDON -British online supermarket Ocado Retail said on Tuesday a July fire at its largest automated warehouse in Erith, southeast London, cost it around 35 million pounds ($48.5 million) in lost revenue.

Ocado Retail is a joint venture between Ocado Group and Marks & Spencer.

Shares in Ocado Group were down 2.7% at 0925 GMT and shares in M&S were down 0.3% after the JV followed other retailers in highlighting the rising costs of labour, particularly for large goods vehicles (LGV) and delivery drivers.

Though the Erith fire on July 16, caused by a collision of robots, damaged less than 1% of the warehouse’s grid system, it was the second major blaze Ocado has suffered in the past three years.

A fire destroyed its robotic warehouse in Andover, southern England, in 2019, requiring a total rebuild.

Ocado Retail Chairman Tim Steiner told reporters changes had been made to robots at the Erith site following the fire.

“Everyone is reassured that the lessons of Andover were well learnt, that Erith was well contained and that we can eliminate what caused the Erith fire to never happen again,” he told reporters.

Ocado Retail’s revenue fell 10.6% to 517.5 million pounds ($716 million) in its third quarter to Aug. 29. Revenue had grown 19.8% in its first half.

The JV said that over the first six weeks of the quarter it had performed in line with expectations, with revenue down 1.8%, reflecting strong comparative numbers with last year when COVID-19 pandemic restrictions drove demand.

However, in the seven weeks after the fire revenue declined by 19%.

Taking account of the benefit of increased capacity at its other warehouses, Ocado Retail estimated it lost around 300,000 customer orders due to the disruption.

Operating losses during the second half due to the business interruption were forecast at around 10 million pounds as Erith ramps back up to full capacity.

The impact of stock and fixed asset write-offs and other incremental costs associated with the fire were estimated at around 10 million pounds.

Ocado Retail said higher labour costs may result in an up to 5 million pound hit to full-year numbers, reflecting higher hourly pay rates and signing-on bonuses.

The JV forecast “strong” revenue growth in its 2021-22 year, benefiting from a full year of capacity contribution from new warehouses at Bristol, the re-built Andover and Purfleet and the forthcoming opening of Bicester.

“We are looking forward to another bumper Christmas and an exciting year of growth in 2022,” Ocado Retail CEO Melanie Smith said.

An additional warehouse, or customer fulfillment centre (CFC) as Ocado calls them, will open over 2022-23 in Luton, extending capacity to 700,000 orders per week.

($1 = 0.7220 pounds)