News

M&S and Ocado create delivery joint venture in £750 million deal

Ocado natural gas

M&S and Ocado have created a 50-50 joint venture which aims to combine brand strength with fast delivery.

Following the expiry of the Waitrose sourcing deal in 2020, Ocado’s UK retail business will sell M&S’s product range.

M&S is buying 50% of the retail business for £750 million plus interest, which will continue to operate as ocado.com.

M&S said the deal would create potential savings of around £70 million per year from increased buying scale, harmonized buying terms joint marketing and conversion of M&S customers. It said that in the year to 2 December 2018 the business would have generated revenue of £1.4 billion.

At the time of writing, Ocado’s share price was up around 12% compared to the previous day.

Steve Rowe, M&S CEO said he had always believed M&S should sell food online and that this deal would move a third of its business online.

“Combining the strength of our food offer with leading online and delivery capability is a compelling proposition to drive long-term growth.

“Our investment in a fully aligned joint-venture with Ocado accelerates our food strategy as it enables us to take our food online in an immediately profitable, scalable and sustainable way.

“Combining the magic of M&S Food with Ocado’s leadership in online technology allows us to transform UK online grocery shopping by offering customers the broadest, most innovative and relevant range in UK food retail with award-winning service.

Tim Steiner, Ocado CEO said: “We believe that this is the best outcome for customers, offering even greater range, service, quality and value; the best outcome for our Ocado Solutions partners, creating a stronger platform from which to innovate and develop our unique and proprietary technology; the best outcome for Ocado Solutions with a further endorsement from another leading global retailer; and the best outcome for our financial stakeholders, unlocking the significant value embedded in Ocado Retail.

The deal is a welcome bit of good news for Ocado at the end of a tough month that saw its Andover distribution centre, providing around 10% of its capacity, fall victim to a major fire.

However, it can also celebrate US supermarket giant Kroger announcing two new sites where it will use Ocado’s distribution centre platform out of the planned 20.

“Accelerated change”: what would an Ocado-M&S deal mean?