Norman’s online conquest: Ocado deal gives M&S a lifeline in a highly competitive market, says ALEX BRUMMER
The share price reaction to the creation of a £1.5billion joint venture between Marks & Spencer and Ocado tells its own story.
M&S fell with a nasty bump, dropping 12.5 per cent, as the retailer – which began on a market stall in Leeds in 1894 – sunk £750million of investor funds into a joint venture with Ocado.
Needless to say Ocado shares – under pressure just a couple of weeks ago after a devastating robotic warehouse fire – climbed almost 3 per cent.
It took the arrival of Archie Norman at M&S together with the presence of M&S veteran Lord Rose as non-executive chairman at Ocado to serve up the £1.5bn venture
The share gyrations are as much about City mechanics as anything else. M&S is asking shareholders to pay for the joint venture in two ways.
It is asking them to stump up £600million through a rights issue, and is using the Ocado deal as an excuse to cut the dividend. Shareholders never like that.
M&S is not the first player to ask investors to stump up for new technology. As chief executive of Sainsbury’s in the early Noughties, Sir Peter Davis did the same in an attempt to bring the grocer’s logistics and warehousing into the 21st century.
Unfortunately he bought systems intended for goods deliveries rather than fresh food, and it all ended in a humiliating disaster.
In a statement of the very obvious, M&S chief executive Steve Rowe says he has always believed that M&S Food ‘could and should be online’. Maybe, but M&S’s online history until now has not been glorious.
Having decided an earlier partnership with Amazon wasn’t good enough it brought in Laura Wade-Gery from Tesco, who designed M&S’s distinctly user-unfriendly site at vast expense, and never properly addressed the food question.
At countless M&S events the idea of online food has come up, trials were mentioned but nothing happened.
The optics of the joint announcement told their own story. The two chief executives – Rowe at M&S and Tim Steiner at Ocado – were rolled out to explain the detail.
Truth is, the deal could not be done by them alone. It has taken the arrival of Archie Norman at M&S and the presence of M&S veteran Lord Rose, non-executive chairman at Ocado, to serve it up.
The initial reaction from some investors is that M&S is engaged in an expensive experiment and that the pay-off could be a long way away.
But we know from the desperation of Sainsbury’s to merge with Asda and the rush into partnership with Ocado by Kroger in the US that for food retailers, fearful of the presence of Amazon, it is time for boldness. M&S has given itself a lifeline in a highly competitive market.
Ocado has demonstrated with Waitrose and Morrisons it has the technical ability.
Onwards and upwards!
It could have been Carolyn McCall who announced the M&S tie-up with Ocado had she moved there when Marc Bolland stepped down as chief executive in 2016.
Instead, the former Easyjet boss landed at ITV where she faces her own digital challenge. The popularity of online streaming services such as Netflix and Amazon has left terrestrial broadcasters worrying they will be left behind.
Big budgets also make it harder for ITV or the BBC to come up with series of the length and quality of The Crown. McCall’s response is for ITV to launch its own streaming service, Britbox, with the BBC.
The idea is to bring the archives of both broadcasters together on one platform where subscribers will be able to watch everything from Doctor Who to Love Island.
Once up and running it is also envisaged that Britbox will start producing original made-for-streaming programmes.
The partners are hopeful that this time around the Competition and Markets Authority will not throw a spanner in the works as it did nearly a decade ago.
The market has changed radically with online streaming services claiming some 17m viewers.
Ofcom is thought to be sympathetic and the plan is, over time, to add Channels 4 and 5 to the service, which might be expected to cost around £7.99 a month.
Regulators should back it, as a significant contributor to ‘creative Britain’.
Something soon needs to change at Vodafone.
After a Moody’s downgrade earlier this week the shares sank to a nine-year low of 133.6p yesterday in latest trading, where they yield an amazing 9.39 per cent.
Senior non-executive director Val Gooding, formerly of Bupa, should be leaned upon to administer urgent care.