Marks and Spencer today (Wednesday January 27) announced the creation of a new 50/50 joint venture with pureplay digital grocer Ocado.
Under the deal, M&S will acquire a 50% share of Ocado’s UK retail business for up to £750 million.
The joint venture will trade as Ocado.com but will benefit from access to M&S’ own-brand products and customer database, which consists of about 7 million members of M&S’ ‘Sparks’ loyalty programme and three million active M&S Bank customers, together with its growing online database.
The tie-up will follow Ocado’s current sourcing agreement with Waitrose & Partners, which comes to an end in September 2020, in line with contractual terms. Waitrose & Partners has been supplying Ocado with both branded and own-label products since 2000.
M&S said the transaction will be primarily financed by equity. The board intends to conduct a rights issue to raise up to £600 million. Concurrently the M&S dividend per share is being reset by 40% ‘to a sustainable level from which to grow in line with earnings over time’.
The high street retailer said it predicted potential cost savings of at least £70 million a year to be achieved by the third year following completion, due to increased buying scale, conversion of M&S customers and joint marketing.
M&S ceo Steve Rowe said: “I’ve 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.”
Ocado ceo Tim Steiner said: “We’re 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.”
Commenting on the news, Waitrose & Partners md Rob Collins said: “We have strengthened our own online business significantly and said last summer that we will double Waitrose.com within five years. Today’s announcement will be a major part of achieving this and in future Waitrose.com and our shops will be the exclusive places in the UK to buy Waitrose & Partners products.
‘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.
“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. We have valued our relationship with Ocado and thank them for the last 19 years.”
L-R: Ocado ceo Tim Steiner and M&S ceo Steve Rowe
PHOTO: Adrian Brooks/Imagewise