Marks & Spencer and Ocado have confirmed a deal which will give the High Street retailer a home delivery service for the first time. M&S will buy a 50% share of Ocado’s retail business for £750m.
The joint venture will be called Ocado and will deliver M&S products from September 2020 at the latest, when Ocado’s deal with Waitrose expires.
Under the deal Ocado will also continue to supply its own-label products and big name branded goods. M&S will fund the deal by selling £600m of shares and by cutting its dividend payout to shareholders by 40%.
“We think we’ve paid a fair price,” said Steve Rowe, M&S chief executive.
“It’s the only way we could have gone online within an immediately scalable, profitable and sustainable business,” he said.
He added that one third of M&S business would be online in the future.
M&S shareholders were sceptical – shares fell 8% following the announcement, while Ocado rose by 8%.
Neil Wilson, chief markets analyst at Markets.com, questioned whether the value of a shop with M&S was big enough for online shopping.
“Basket sizes at M&S are extremely small relative to other larger supermarkets and significantly below the current Ocado minimum for delivery.
“I would also query whether M&S can retain the current Ocado customer base who are used to getting Waitrose products. There is a high risk of customer leakage as consumers rotate to Waitrose’s in-house delivery service.”
Ocado founder and chief executive Tim Steiner told the BBC of the 50,000 products it currently sold, about 4,500 were Waitrose branded.
When the new joint venture is up and running these would be replaced by more than 4,500 M&S products, he added.
Commenting on the deal, Waitrose managing director Rob Collins said the supermarket chain had strengthened its own online business “significantly” and that it planned to double Waitrose.com within five years.