EasyFoodstore and Ocado reap the rewards of a sector split in two

4th Feb 2016

Photo credit: EasyFoodstore

Britain's food industry entered the recession as a four party race. But in a week that saw EasyFoodstore open for business for less than two days after running out of stock, while Ocado posted a 65.3 per cent rise in annual profit pre-tax, it's clear there's a new generation of supermarkets waiting in the wings. 

Long described as the Big Four of the supermarket industry, Tesco, Asda, Sainsbury's and Morrisons certainly aren't dropping out of their respective running positions any time soon. However, headlines this week have shown just how much of the sector is up for grabs for someone with a little imagination. Despite some recovery in household spending (consumer spending in the United Kingdom increased to £2.9 million in the third quarter of 2015 from £2.8 million in the second quarter of 2015), a culture of aggressive discounting and perceived value for money have become shopping habits consumers won't be forgetting even as downturn passes.

The gargantuan supermarkets have been sitting targets since Aldi and Lidl began taking over swathes of the market share almost ten years ago. Whereas the family shop used to be grounded in tradition, based on income, area and class, now even (literally) cheap publicity stunts are enough to get shoppers to switch their loyalties for a week.

EasyJet founder Sir Stelios Haji-Ioannou's latest venture, a budget food store, finally launched this week after years in the making. Trialling in North London, the EasyFoodstore opened with an introductory price of just 25p an item for everyday groceries, but last night announced it had been forced to close temporarily after less than two days trading as it had run out of stock. 

According to the company, it will reopen on Friday morning after re-stocking the shelves. A spokesman for easyFoodstore, in Park Royal, north-west London, said: "The level of interest has been completely overwhelming. The last people through the door today had travelled up from Canterbury.

"We anticipated we had enough stock to last a couple of weeks but it has just gone in a day and a half."

The supermarket, which uses the slogan "No expensive brands. Just food honestly priced", will continue to sell items at the introductory price of 25p throughout February, before prices rise, although they are expected to remain very low.

So while household income continues to improve and consumers hear more and more from celebrity chefs such as Jamie Oliver and Jimmy Doherty on the need for sustainable food and transparent supply chains, shoppers are still happy to be sold a bargain that can't last. 

Meanwhile, at the other end of the spectrum, Ocado has managed to defy critics by posting another set of exemplary annual results, despite concerns that its debt pile remains untouched. Despite headlines that Ocado's management team would be in line to receive nearly £8 million in share bonuses after a second year of profits, the group's debt widened in the 52 weeks to 29th November, from £99.4 million to £127 million. 

While pretax profits at the company rose 65.3 per cent year-on-year to £11.9 million, Ocado's future as another new kid on the block might not be as secure as eye-catching results let on.

Speaking in light of the annual figures, John Ibbotson, director the retail consultancy firm Retail Vision, also pointed to the fact that Ocado are yet to address the company's £127m of net debt. He added that Ocado is fond of portraying itself as the grocery of the future but on this evidence there's a danger it always will be.

"Its potential is still frustratingly unfulfilled," he said. "These results show solid revenue growth, but don't yet answer the fundamental question of what Ocado is for.

"There is clearly a place in the market for Ocado's high-end, online-only offering. Its hard-earned reputation for service is keeping customers loyal, but with the average order size falling and each delivery costing the company up to £20, it is working harder and paying more for every pound of revenue than its rivals." 

While market attention focuses on Ocado's readily-quotable comment that they now expect to sign "multiple deals, in multiple territories" in order to license their technology to other retailers, they are, to date, yet to sign any new clients up.

What does it all amount to? After its success with MorrisonsOcado may well sign up new deals in other territories, securing a position within the food sector that wouldn't have been possible even fifteen years ago. And that goes for EasyFoodstore too.

When Lidl and Aldi first arrived on the scene, spectators were incredulous as to their rise. But capture the public's imagination and offer them something the established brands aren't able to, and you've got yourself a deal.

Ava Szajna

My Retail Media


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