Marks and Spencer and Ocado in home delivery deal talks

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Marks and Spencer (M&S) and Ocado have confirmed they are “in discussions” about a £1.8bn joint venture.

Shares in both companies jumped on the news about the deal, which would give M&S a food delivery service for the first time.

The London Evening Standard said any deal would see M&S pay Ocado between £800-900m for a 50% stake.

The deal seems to suggest the end of Ocado’s current deal with Waitrose, which was due to expire next year.

Ocado pioneered online grocery shopping with Waitrose 20 years ago,

Its agreement also gives Ocado the right to use the Waitrose brands on its website and on its fleet of more than 700 vans.

Chief executive, Tim Steiner, said earlier this month that the arrangement with Waitrose prevented it from supplying own label products from any other leading UK grocery retailer.

Retail analyst Natalie Berg from NBK Retail said it wasn’t clear whether a business venture with Marks & Spencer would mean Ocado ending its deal with Waitrose.

But she said such a move would make sense for both Ocado and M&S: “It is a win-win for both parties. Amazon’s plans to enter the UK home delivery grocery market has put the sector on red alert against this major threat.

“But this would make sense as shoppers move into same-day grocery deliveries – as M&S already sell that sort of on-the-day consumption food.”

Vincent Lee, retail analyst at Bernstein Reserch, said Marks and Spencer would effectively be “buying Ocado’s customers” and the company’s food delivery technology – allowing them to increase their market share. He added that the M&S food business had been struggling, so it was clear that they needed a delivery business.

Latest figures from M&S showed food sales fell 2.1%.

M&S said there was no certainty the discussions would lead to a tie-up.

Currently Ocado has a deal to deliver Waitrose-branded goods and also delivers its own Ocado-branded products.

In addition, it has a delivery deal with Morrisons, although this is done under the Yorkshire-based supermarket’s own brand.

Ocado, founded by three Goldman Sachs bankers, has recently undertaken a number of new international deals, striking licensing deals with retailers in Sweden, the US and Canada.

Shares in M&S were up 3% on the news while Ocado was up 10%.


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