UK store group Marks & Spencer is splashing out £750 million for the retail business of online grocery specialist Ocado to try to catch up with the likes of Tesco, Sainsbury and ASDA in the fast-growing online grocery market.
M&S, best known for stores selling a mix of food, clothing and home goods, announced yesterday the creation of a 50-50 joint venture with Ocado “that will transform online grocery shopping for UK consumers” by combining the strength of M&S’s brand, food quality and extensive customer base with Ocado’s technology-based delivery operation.
The move, avoiding costly investment to build up its own delivery operation, will kick-start M&S’s currently small online grocery business and put it head-to-head with the country’s biggest supermarket chains, such as Tesco’s, Sainsbury’s and ASDA.
The new company, which will trade as Ocado.com, will sell and deliver M&S products from September 2020 at the latest when Ocado’s current deal with supermarket group Waitrose is due to expire. Ocado will transfer its retail business to the JV and provide fulfilment and delivery services.
The £11 billion British online grocery market currently accounts for just 7% of total grocery spending but is predicted to grow to £17 billion by 2023 and account for 20% of the total market. At present, Ocado has 15% of this online market, delivering over 290,000 orders a week to more than 700,000 customers.
Steve Rowe, M&S CEO, 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. 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.”
Tim Steiner, Ocado CEO, commented: “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.
“The combination 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 here in the UK. We are very excited by the many opportunities ahead.”
