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M&S and Ocado to start home delivery service next year

February 27, 2019

 

Marks & Spencer and Ocado have confirmed a deal which will give the High Street retailer a home delivery service for the first time.

 

M&S will buy a 50% share of Ocado's retail business for £750m.

 

The joint venture will be called Ocado and will deliver M&S products from September 2020 at the latest, when Ocado's deal with Waitrose expires.

 

Under the deal Ocado will also continue to supply its own-label products and big name branded goods.

 

What does the deal mean for shoppers?


Ocado's deal to deliver about 4,500 Waitrose goods is due to end in September 2020.

 

Shoppers will then be able to order more than 4,500 M&S products alongside Ocado own-label goods and big name branded items.

 

Existing Waitrose customers - who have products delivered by Ocado - will have two choices:

 

They could choose to stay with Ocado and switch to buying M&S goods
They could switch to Waitrose.com which operates its own online delivery service


Waitrose managing director Rob Collins said the supermarket chain had strengthened its own online business "significantly" and that it planned to double its sales within five years.

 

M&S chief executive Steve Rowe claimed that current Ocado customers would benefit from the deal as Marks and Spencer products were on average cheaper than comparable Waitrose products.

 

The deal could also see some of Ocado's own brand products being stocked in M&S stores.

 

Ocado also has a deal to supply Morrisons with the technology to run its online business. This arrangement is separate and will not be affected by the new tie-up. Visitors to the Ocado site will still not be able to order Morrisons.

 

How are M&S going to pay for the deal?


M&S is to buy a 50% share of Ocado's retail business for £750m.

 

The retailer will fund the deal by selling £600m of shares and by cutting its dividend payout to shareholders by 40%.

 

"We think we've paid a fair price," said Steve Rowe, M&S chief executive.

"It's the only way we could have gone online within an immediately scalable, profitable and sustainable business," he said.

 

M&S shareholders were sceptical, its shares fell 10% following the announcement, while Ocado's shares rose by almost 4%.

 

Why is M&S doing the deal?


M&S has struggled in recent times.

 

Clothing, home and food sales have all fallen, amid "challenging" trading conditions on the High Street.

 

It has been hampered by not having an online delivery service.

However, Mr Rowe said in the future one third of M&S business would be online.

 

The deal was the "only way we could have gone online within an immediately scalable, profitable and sustainable business", he said.

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