19/09/2011 09:04 BST | Updated 18/11/2011 10:12 GMT

Ocado: Slowdown In Sales Growth For Online Grocer

PRESS ASSOCIATION -- Online grocer Ocado has 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.

It added on Monday that work to return customer services to "previous high levels" had paid off, with items delivered as ordered currently at 99% and those on time or early at 95.5%. 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% in the 12 weeks to August 7, down from 20.8% in the previous period, after being dogged by capacity issues at its Hatfield centre.

The group floated on the stock market in July 2010 at 180p per share but has seen its price drop as low as 106p amid doubts it can compete with supermarket home delivery services. Shares were down 13% on Monday.

The group is investing £80 million improving capacity at its Hatfield distribution centre and said it had made "significant progress" over the summer months after installing new equipment and software.

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 Dordon, Warwickshire, but this will not open until the end of 2012.

It also launched the Ocado Saving Pass scheme, which gives customers a discount of at least 10% 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 customers. 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. The competition became more intense in recent weeks after Waitrose started delivering to homes in Ocado's stronghold within the M25.