M&S and Ocado confirm details of joint venture

Marks & Spencer (M&S) and Ocado have announced the creation of a new 50/50 joint venture (JV), which will see M&S acquire half of Ocado’s UK retail business and start selling its products via Ocado.com from September 2020.

The new JV, which has involved a £750 million investment from M&S, will be supported by the Ocado Smart Platform (OSP) technology infrastructure that the online grocer uses to help run third-parties' eCommerce operations around the world.

In two separate statements the companies said the JV combines what they described as the strong and quality food proposition of M&S with Ocado's “unique and proprietary technology”, and called it a “transformational moment” in UK online grocery shopping.

Waitrose, a supplier of food and products for Ocado’s online service since 2002, will no longer sell its SKUs via the online grocer once the M&S partnership gets under way. Today’s announcement gives the required 18 months’ notice period to the John Lewis Partnership grocer.

Steve Rowe, M&S CEO, commented: "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.”

Tim Steiner, Ocado CEO, said: "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 eCommerce here in the UK.”

M&S is undergoing a major transformation programme to reshape its business, organisation and culture, with Rowe regularly talking of its plans to become a “digital first” business.

For the last few years, M&S has been trialling online food delivery and click & collect services for a small range of items, but described these tests as uneconomic due to the high cost of manually picking from store. This, it said, includes costs associated with moving stock from distribution centres to stores and store replenishment costs.

Essential Retail recently broke the news that Samantha Hornsby has joined M&S as the new head of food online, replacing Tim Lee, who left M&S last October to become CEO of online recipe box service, Mindful Chef.

The M&S tie-up with Ocado now supports the roll-out of a full grocery shop, as well as access to Ocado’s innovation such as the one-hour fulfilment service Zoom in London.

The JV will also have access to the circa seven million members of M&S’s Sparks loyalty scheme.

Catherine Shuttleworth, CEO at shopper marketing agency Savvy, remarked: “[M&S chairman] Archie Norman and his new experienced team in food – led by Stuart Machin and soon to be joined by Tesco star George Wright – know that the M&S food business needs a radical solution to capture the hearts minds and stomachs of younger shoppers and there’s no point hoping that they can just wait for the shoppers to roll up to M&S stores – that’s just not happening.

“So, a deal with Ocado makes sense, saves time and money. M&S are out of the trap quickly and have a whole new massive group of digital savvy shoppers to go for, with positive attitudes to home delivery and a relatively high grocery spend.”

Shuttleworth added that, for Ocado, the deal could allow the business to “crack on with selling their tech solutions to retailers across the globe without being held back and distracted by the day to day of the Ocado UK retail trading business”.

She said: “With a new shiny exciting partner with a stated intention of growing through digital, they can cut the ties with Waitrose, a partner that they have never really fallen in love with. Their differences of opinion have been many and public over the last seven years.” 

Reflecting on Waitrose’s position as a result of the new deal, Shuttleworth noted: “Well, they might put a brave face on things, but this will be a blow.

“Already losing sales to the discounters, the thought of M&S now sweet talking Waitrose shoppers is going to be a bitter pill to swallow.”