Ocado’s efforts to restore customer service standards pay off but are set to hit profits

ONLINE grocer Ocado revealed a slowdown in sales growth and said its efforts to stem a recent decline in customer service standards would hit profits.

The company said earlier this year that more orders were being delivered late as it struggled to keep up with demand because of capacity constraints.

Yesterday it said that work to return customer services to “previous high levels” had paid off with items delivered as ordered currently at 99 per cent and those on time or early at 95.5 per cent.

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However, it said this work was likely to lead to a slower than expected increase in profit margins.

Sales at the grocer, which sells Waitrose products to much of the UK, rose 16.9 per cent in the 12 weeks to August 7, down from 20.8 per cent in the previous period, after being dogged by capacity issues at its Hatfield centre.

The group is investing £80m improving capacity at its Hatfield distribution centre and said it had made “significant progress” over the summer months after installing new equipment and soft-ware.

Its improvement works are continuing and it hopes to be able to deal with 140,000 orders per week by the end of the current quarter, compared with 111,000 in its third quarter. Ocado is also building a new distribution centre in Warwickshire, but this will not open until the end of 2012.

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Yesterday it launched the Ocado Saving Pass scheme, which gives customers a discount of at least 10 per cent across a range of 500 products, after they pay a small annual fee.

Chief executive Tim Steiner said: “In spite of the tough economic environment, our sales are growing substantially and we remain focused on improving range, value and service for our custom- ers.

“We have invested additional resources in improving our key customer performance metrics and we are pleased that these efforts are paying off.”

Ocado aims to take advantage of a boom in internet shopping, but has faced doubts about its business model, with analysts sceptical that it can compete with attempts by supermarkets to provide a similar service at lower cost.

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The competition became more intense in recent weeks after Waitrose started delivering to homes in Ocado’s stronghold within the M25.

The group floated on the stock market in July 2010 at 180p per share, but shares closed down 11 per cent at 118p last night.