Ocado shares rose as much as 6.7% after a report suggested it may agree a deal with Marks and Spencer to deliver its food and drink. M&S could buy distribution centres and vans from Ocado, the Mail on Sunday reported.
It has been exploring options for food delivery online in a bid to catch up with rivals such as Sainsbury’s. Both companies declined to comment. Analysts suggested Ocado could stock M&S food or run its website.
Ocado currently has a deal with southern England-focused Waitrose, which is due to come to an end in September 2020.
M&S has been experimenting with home delivery since 2017, when it opened a trial in north London to offer a small range of ready meals.
Its website already offers wedding cakes, party food and alcoholic drinks for collection, but it lacks a delivery network the likes of Tesco, Morrison, Sainsbury’s or Asda have.
After those earlier gains, Ocado shares settled to stand 3% higher at 975p. Marks and Spencer shares rose 2% to 295p.
M&S, founded in 1884, has been struggling in recent years to keep up online in both food and clothing. It said in November that sales excluding newer stores, were down 2.2% for the six months to the end of September. Food sales were down 2.9% and clothing and home sales slid 1.1%. A deal of any kind is not certain, the newspaper reported.
If talks progress, there are two broad ways the two companies could work together, said Laith Khalaf, of stockbrokers Hargreaves Lansdown.
Ocado could take over running M&S’s food website, handling logistics, payment and deliveries. This would be a similar deal to the one Ocado has with Morrisons.
“The challenge there is the economics of delivering basket sizes,” says Mr Khalaf. M&S shoppers might buy a day or two’s worth of food rather than a weekly shop, which makes the cost of delivery proportionately more expensive.
The other option is for Ocado to carry M&S food, similar to its deal with Waitrose. This option is “more economically viable”, he said, since it would mean less upfront expenditure from M&S.