Ocado goes M&S from 2020

Marks & Spencer is going into a grocery delivery joint venture (JV) with Ocado, which is to leave its current deal with Waitrose.

Under the deal with Ocado, M&S is to buy a 50% share of the UK retail business of Ocado. This will l be supported by Ocado Smart Platform for a total consideration of up to £750 million, including a deferred consideration of up to £187.5 million, plus interest.

The hoped for result will be M&S’s brand and reputation of good food combined with the technology provided with Ocado.

Under the JV the operations will continue to trade as Ocado.com. It will however sell many of M&S’s brand, products and customer database from around September 2020, immediately after the termination of its current deal with Waitrose.

Steve Rowe, M&S CEO 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. 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.”

For the 52 weeks ended 2 December 2018, the newly created JV would have generated revenue of £1,468 million and EBITDA2 of £34.2 million, taking into account the newly created OSP contract and other fees and services. Furthermore, under the new sourcing arrangement the JV will no longer incur sourcing fees payable to Waitrose, which were over £15 million in 2018.

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 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.”

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