Following press and media speculation, Marks and Spencer Group Plc (M&S) has announced the creation of a 50/50 joint venture with Ocado Group Plc (Ocado) and states it ‘will transform online grocery shopping for UK consumers’.
As suggested by FMT yesterday in our report about the probable structure, under the new joint venture, M&S is acquiring a 50% share of Ocado’s UK retail business for a total consideration of up to £750m, including a deferred consideration of up to £187.5m, plus interest.
The joint venture will trade as Ocado.com but benefit from access to the M&S brand, its products and customer database from September 2020 at the latest, following the termination of the current Waitrose sourcing agreement and a migration of joint venture sourcing to M&S.
The development is claimed by both businesses to have many benefits such as long-term value creation opportunities for M&S and Ocado. Both organisations say that its customers will also benefit from this new development, and that the set up will have access to over 12-million M&S food shoppers.
For the 52 weeks ended 2nd December 2018, had the new structure been operational the newly created joint venture would have generated revenue of £1,468m.
Furthermore, under the new sourcing arrangement the new joint venture will no longer incur sourcing fees currently payable to Waitrose, which were over £15m in 2018.
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.
“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.”
Tim Steiner, Ocado CEO added: “We are delighted that our UK retail business will become a joint venture with M&S.
“We believe that this is the best outcome for customers, offering even greater range, service, quality and value; the best outcome for our Ocado Solutions partners, creating a stronger platform from which to innovate and develop our unique and proprietary technology”
The joint venture will also have access to the seven million members of “Sparks”, M&S’s loyalty programme, and three million active M&S Bank customers, together with its online database, offering the potential to build an integrated loyalty programme with insights and personalised rewards.
The board of the joint venture business will be shared 50/50 between M&S and Ocado, with each having the right to appoint two directors.
For five years from completion, Ocado will have the right to appoint the CEO, and M&S one of the directors as chair. M&S expect the transaction to close sometime in quarter three this year.
In a statement Waitrose confirmed that its commercial arrangement with Ocado will come to an end in September 2020, in line with contractual terms’
Rob Collins, MD of Waitrose & Partners, said: “We have strengthened our own online business significantly and said last summer that we will double Waitrose.com within five years. Today’s announcement will be a major part of achieving this and in future Waitrose.com and our shops will be the exclusive places in the UK to buy Waitrose & Partners products.
“Waitrose.com sales are growing at 14.2%, well ahead of the market, and customer satisfaction scores for both fulfilment and the website are showing sustained and significant increases too.
“We are planning a second fulfilment centre to support our growing volumes in London and will be able to welcome thousands more online customers to Waitrose from the end of this year.
“We have valued our relationship with Ocado and thank them for the last 19 years.”