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M&S In Tie-Up Talks With Ocado To Take Its Food Online

Published on Feb 26 2019 12:50 PM in Retail tagged: E-Commerce / M&S / Ocado

M&S In Tie-Up Talks With Ocado To Take Its Food Online

British retailer Marks & Spencer (M&S) is in talks with Ocado to form a joint venture that would give M&S a full online food delivery service for the first time, sending shares in both groups jumping on Tuesday.

Britain's best-known store chain and the online supermarket pioneer released short statements saying there was no guarantee a deal would emerge, after London's Evening Standard newspaper said M&S was set to pay up to £900 million for a 50% stake in a combined retail business.

Recent Struggles

The 135-year-old M&S is a mainstay of Britain's shopping streets, but has been struggling to cope in recent years with the rise of fast fashion, discounters and online shopping.

The firm currently sells wine, flowers and clothes online, but does not offer a full delivery service for its upmarket foods, putting it at a disadvantage to rivals such as the John Lewis-owned Waitrose and Britain's biggest supermarket Tesco.

Ocado, founded by three Goldman Sachs bankers 18 years ago, has been transformed in the last year after it struck major deals to sell its technology to international retailers such as U.S. group Kroger Co and France's Casino.

While the focus on technology has boosted its share price, the deal as mooted would enable it to keep a stake in its British retail business rather than selling it completely to focus on tech deals.

The cash from M&S would also enable it to invest further in the online distribution centres it is building.

'A Lot Of Sense'

"In our view a 50/50 JV makes a lot of sense for Ocado today," Bernstein analysts said. "It is too early to lose their retail business as it is an essential and unbeatable part of the sales pitch to global customers (i.e. they are not just selling you some hardware/software, they operate it very successfully in the most competitive grocery ecommerce market in the world)."

Shares in Ocado were up 10% at 1205 GMT, while M&S was up 3.2%.

The Evening Standard report suggested Ocado would use M&S as a supply partner for British customers. It was not clear what this would mean for its current partnership with Waitrose.

Ocado's deal with Waitrose ends in September 2020 and the Standard said it had an 18-month break clause. Waitrose declined to comment.

News by Reuters, edited by Checkout. Click subscribe to sign up for the Checkout print edition.

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