British retailer Marks and Spencer (M&S) has created a new 50/50 online grocery joint venture with Ocado, in a move “to transform UK online grocery shopping”.
Under the deal, M&S is acquiring a 50% share of Ocado’s UK retail business, which will 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.
Trading as Ocado.com, the company will combine M&S’s branded food and beverage range with Ocado’s line of own-label and third-party goods, to offer more than 50,000 products.
The M&S portfolio will be available on the platform by September 2020, replacing Ocado’s current sourcing agreement with Waitrose. From then on, the JV will have exclusive rights to sell M&S’s full range of food and beverage products online.
M&S said its prior online trial was uneconomic due to the high cost of manually picking from store, including costs associated with moving stock from distribution centres to stores.
It added that the combination with Ocado will enable the delivery of a full grocery shop and is “the optimal strategy to access online growth”.
The online grocery sector is forecast to be the fastest growing channel in the UK, predicted to increase from an £11 billion market in 2018 to £17 billion in 2023.
M&S CEO Steve Rowe 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.
“Combining the magic of M&S Food with Ocado’s leadership in online technology allows us to transform UK online grocery shopping by offering customers the broadest, most innovative and relevant range in UK food retail with award-winning service. Our partnership with Ocado will create shared value for our customers, colleagues, supplier partners and shareholders, operating with a common sense of purpose and values.
“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.”
Ocado CEO Tim Steiner said: “We are 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.
He added: “The combination of the qualities 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 in the UK. We are very excited by the many opportunities ahead.”
As part for the deal, Ocado has the right to appoint the JV’s CEO. Lawrence Hene, currently Ocado’s commercial director, has been appointed as interim managing director.
It is expected the transaction will close in the third quarter of 2019.
© FoodBev Media Ltd 2019