Marks & Spencer has revealed full details of its new online joint venture with Ocado, which will see the upmarket retailer become a major new player in online grocery.
The much-anticipated JV sees M&S acquire a 50 per cent share of Ocado’s UK retail business, backed by the Ocado Smart Platform, for up to £750 million. M&S touted the move as marking a major step in becoming “a truly digital-first retailer”.
Trading as Ocado.com, the JV will have access to M&S’s brand, products and customer database from September 2020 at the latest, following the termination of the current Waitrose sourcing agreement and migration of JV sourcing to M&S.
The two sides said the deal “combines the strength of M&S's brand and its leading food quality and innovation with Ocado's unique and proprietary technology to create an unrivalled online offer for our customers”.
M&S, which plans to fund the deal by raising share capital of up to £600m, believes the JV will give new impetus to its food business by giving it a “profitable, scalable presence” in the online grocery market, as well as providing long-term value-creation opportunities. The new business would have had sales of £1.5 billion last year, and will make savings including the £15m in sourcing fees that were payable to Waitrose and an estimated £70m thanks to increased buying scale, harmonised buying terms and joint marketing.
Specifically, M&S said a meaningful boost in scale would bring economies to its own-label and branded products; the alignment would allow faster testing of new product development and significantly reduce trial and development costs; and Ocado own label would be rebranded as M&S as an opening price point product in stores.
A previous M&S online trial proved to be uneconomical due to the high cost of manually picking from store, including costs associated with moving stock from distribution centres to stores and store replenishment costs. Developing best-in-class technology and investing in fulfilment centres would delay the implementation of the retailer’s transformation programme and carry significant execution risk, it said, in outlining the case for working with Ocado rather than going it alone.
'Transformative step forward'
M&S chief executive Steve Rowe said:'I have always believed that M&S Food could and should be 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. Our partnership with Ocado will create shared value for our customers, colleagues, supplier partners and shareholders, operating with a common sense of purpose and values.
'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 chief executive Tim Steiner added:'We are delighted that our UK retail business will become a joint venture with M&S. This is a transformative moment in the UK retail sector with the combination of two iconic and much-loved retail brands set to provide an unrivalled online grocery offer.
'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 combination of Ocado and M&S will allow us to grow faster, add more jobs, and create more value, as we lead the channel shift to e-commerce here in the UK. We are very excited by the many opportunities ahead.'
