Under the terms of the joint venture, M&S is to acquire a 50% share of Ocado for £750m as part of a five-year plan to “unlock growth” within its food business.
Ocado will continue to trade under its current name, but will offer M&S products from September 2020 at the latest, following the termination of its current Waitrose agreement. The transaction is expected to be completed in the third quarter of 2019.
According to M&S, its food division is expected to create “synergies” of £70m per annum by the third year of the deal, due to “increased buying scale, harmonised buying terms, conversion of M&S customers who currently account for [around] one-third of online grocery spend, joint marketing, shared innovation, and complementary category and regional mixes”.
M&S added that its previous attempt to enter online retailing failed due to the logistics costs and said that “developing best-in-class technology and investing in fulfilment centres would delay the implementation of our transformation programme and carry significant execution risk”.
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.”
Tim Steiner, Ocado CEO, added: “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.
“We believe 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 best outcome for Ocado Solutions, with a further endorsement from another leading global retailer; and the best outcome for our financial stakeholders, unlocking the significant value embedded in Ocado Retail.
“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.”
Earlier this month, a proposed joint venture between Asda and Sainsbury’s appeared to be dead in the water following a Competition and Markets Authority investigation, which found that the merger could lead to a “worse experience for UK shoppers”.