Ocado claims ‘back to the future’ strategy fuelling customer growth

Ocado claims a “back to the future” approach to the marketing mix, fuelled by a decision to cut budgets, has driven improved levels of customer acquisition and retention.

The business slashed its marketing investment to £43m, down £14.6m on full-year 2022 levels, in a bid to “optimise” the channel mix and chase efficiencies. As a result, marketing spend as a percentage of revenue fell to 1.8% in the year to 3 December, compared to 2.6% the year prior.

On an investor call today (29 February), CEO Tim Steiner claimed this marketing rethink helped to grow Ocado’s base of mature customers, up 9% on 2022.

“Sometimes you can do different marketing activity. In 2020 we were doing broader marketing activities that brought in higher numbers, but of less quality. What we’ve done is try to refine that to get back to the lower CPAs [cost per acquisition] we were familiar with in 2019,” he explained.

“Going back to basics – or back to the future – has enabled us to have what looks like 5.9% growth in active customers, [but] is actually a 9% growth in what we would consider to be mature customer growth, which is where you want the business to be.”

Steiner claims taking marketing spend back to pre-Covid levels and reducing levels of vouchering has helped Ocado “quickly” recoup its investment in customer acquisition. The CEO says the customer proposition is “back to where it should be”, with an NPS of +7.

Going back to basics, or back to the future, has enabled us to have what looks 5.9% growth in active customers.

Tim Steiner, Ocado

Despite pulling back on its marketing investment, the business has beefed up its team with external hires. Over the past year Ocado has brought in “deep subject matter experts” in ecommerce marketing, customer acquisition and retention, as well as retail media.

The company is also developing an “analytics playbook”. According to the CEO of Ocado Retail Solutions, John Martin, this playbook offers insights to Ocado’s B2B customers on the appropriate levels of marketing investment, customer acquisition and retention strategies, as well as how to revamp their organisational design.

Inflationary environment

Over the year to 3 December, group revenue grew by 9.9% to £2.8bn, with revenue in Ocado Retail up 7% to £2.4bn.

Gross profit in the retail division rose 7.7% to £797m, driven by what Ocado describes as improved range and stock management, reduced wastage and increased delivery income.

The business now boasts 998,000 active customers, up by 5.9% on the previous financial year, with order growth up 4% to 393,000 orders per week. Basket sizes have grown in value by 2.7% to £120.94 over the year to 3 December, which the company attributes to its investment in the Ocado Price Promise, launched in March 2023.

That said, value growth was offset by the smaller number of items per basket, down 4.5% to 44 items, as customers managed their overall spend amid the ongoing cost crisis.

Ocado credits shift in marketing strategy for improved customer retention

Describing Price Promise as a key component of the value strategy, Ocado claims to be matching Tesco.com on over 10,000 products, including Clubcard prices. The price guarantee is in addition to “multiple rounds of price cuts” over the past year. In 2023, Ocado says it resisted passing on the “full impact” of food price inflation to customers, with the average selling price on Ocado.com up 7.9% versus wider grocery inflation of 10.4%.

“Our average sales price has increased significantly below market inflation over the last year as we’re investing in the proposition and our pricing,” said Steiner. “We relaunched the Ocado Price Promise to guarantee our baskets are as cheap as shopping at the largest grocery retailer in the UK and we have had thousands of product price drops.”

The business is back up to 50,000 SKUs, the same levels as pre-Covid, with around 90% of the M&S Food range available on Ocado.com. This is in addition to further investments in own brand product via Ocado Own Range.

Ocado Retail’s share of the online grocery market increased from 12.3% to 12.7% over the period, while its share of the overall UK grocery market grew from 1.6% to 1.7%. With a plan to chase active customer growth, Steiner claims the business remains confident in its “ongoing momentum” and is set up to achieve mid to high single digit revenue growth over the coming year.