Marks & Spencer (M&S) products are to be available through Ocado.com from September 2020 under a new joint venture between the businesses.
M&S has today (27 February) announced it is acquiring a 50% share of Ocado’s UK retail business and operating platform for £750m. The move will give Ocado access to the M&S brand, its products and customer database from next September, following the end of Ocado’s current sourcing agreement with Waitrose.
The joint venture “combines the strength of M&S’ brand and its leading food quality and innovation with Ocado’s unique and proprietary technology to create an unrivalled online offer”, stated the retailer. Had the joint venture been in place last year, it would have generated £1.5bn in revenue.
“I have always believed M&S Food could and should be online,” explained M&S CEO Steve Rowe. “Combining the strength of our food offer with leading online and delivery capability is a compelling proposition to drive long-term growth.”
The deal comes as M&S works to modernise the business by improving its systems and recovering lost market share among younger shoppers. Activity has included store closures, the scaling-back of its Simply Food openings, and appointment of big hitters to the board, including former Sainsbury’s CEO Justin King.
Rowe said the deal would accelerate the M&S Food strategy by enabling the business to take 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,” Rowe added.
“This is a transformational step forward in shaping the future of M&S and in becoming a truly digital-first retailer with at least a third of the business online.”
Ocado boss Tim Steiner said the joint venture would enable the business to “grow faster, add more jobs, and create more value”.
“We believe 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.”
It is expected the deal will have potential synergies for M&S Food of £70m a year from increased buying scale, harmonised buying terms, conversion of M&S customers to online spend, joint marketing, shared innovation, and complementary category and regional mixes.
The transaction will be primarily financed by equity, with M&S planning to raise up to £600m through a rights Issue.
Waitrose said ending its commercial arrangement with Ocado, in line with contractual terms, would play a major role in strengthening its own online business.
“Waitrose.com sales are growing at 14.2%, well ahead of the market, and customer satisfaction scores for both fulfilment and the website are showing sustained and significant increases too,” added Waitrose MD Rob Collins.
‘We are planning a second fulfilment centre to support our growing volumes in London and will be able to welcome thousands more online customers to Waitrose from the end of this year.”