Today, the Ocado (LSE:OCDO) share price is down 4.6%. At 989p, it’s also just hit fresh 52-week lows. On a day when the FTSE 100 is up by 0.8%, this move contrasts with the rest of the index. This move isn’t just today — over the past year, the Ocado share price is down by 53%. So what are the reasons behind this?
High grocery inflation issues
In the short run, I can put the falling share price down to rising price inflation. I think most of us are aware and feeling the pinch that higher prices are causing. This impacts consumers in various different ways, from energy prices to the erosion in value of cash. However, another everyday impact we feel is in grocery prices. The higher prices of everyday food items can lead us to seek more budget alternatives.
For the Ocado Grocery division, this isn’t helping. Ocado isn’t seen as a budget online supermarket, especially with the partnership with Marks & Spencer (and previously Waitrose). Therefore, higher inflation is expected to dampen revenues for this part of the business. Consumers will likely head to their cheaper competitors to shop rather than Ocado. This thinking is one driver behind the lower Ocado share price in recent weeks.
Shifting consumer activity
Another point that’s hindering the Ocado share price is the shift in consumer behaviour now that we’re leaving the pandemic behind us. In the Q1 results, it highlighted that the average basket size value was £124. This was 15% lower than the same period last year.
As customers adjust back to pre-pandemic behaviour, more are likely to be going out to a supermarket, rather than ordering online. In-office working also makes it harder to be present for deliveries. This combination isn’t ideal for an online grocery like Ocado.
I personally don’t see this behaviour shift reverting back to 2020 or 2021 levels, so think the Ocado share price is reflecting this as it has moved lower in 2022 so far.
My thoughts on the Ocado share price
I should note that most of the concerns raised relate to the Ocado retail division, including the grocery arm. Ocado is actually a well-diversified company, with large logistics and technology divisions. The retail part does dwarf the others in terms of revenue, but this doesn’t tell the full story. When I look at the growth rates of revenue in 2021 versus 2020, retail grew by 4.6% whereas UK solutions and logistics grew by 8.6%.
Therefore, although the Ocado share price is suffering at the moment, I do need to be mindful of the other parts of the company that are doing well.
Even with this being the case, I can’t find enough reasons to convince me to invest right now, so I’m staying clear.