London — The share prices of British retailer Marks & Spencer and online supermarket Ocado rose sharply on Monday after a Sunday newspaper reported they were in talks on the launching of an M&S food delivery service.
M&S rose as much as 2.6% and Ocado 6.7% after the Mail on Sunday said M&S and Ocado executives had been in talks for a few weeks. Both companies declined to comment.
Ocado has a supply and delivery contract with Waitrose, the John Lewis Partnership-owned supermarket, that runs until 2020.
The paper reported that the deal on the table was M&S effectively replacing the Waitrose part of the Ocado business. Waitrose would also not comment.
Online is Britain's fastest-growing grocery channel and expected to grow 52% over the next five years to £17.3bn, according to industry researcher IGD.
Ocado, which has helped to drive online shopping in Britain, has been trying to sell its proprietary technology to international supermarkets for a few years, with new deals seen as key to the company’s valuation.
While M&S's share price is down 5% year on year, Ocado’s has doubled, thanks to four major overseas partnership deals, taking its market capitalisation to about £6.6bn.
M&S sells wine and flowers online as well as clothing, but does not offer a full food-delivery service.
But the retailer has been conducting trials since 2017 .when the company conceded it could no longer ignore the growing online part of the industry.
Steve Rowe, M&S’s CEO, was asked about the retailer's plans for a full online grocery shopping service when the group gave an update on Christmas trading on January 10, revealing another fall in underlying food sales.
“At the moment our basket size is not appropriate for that,” he told reporters.
“Forty-one percent of our customers are shopping for today/tonight. That’s something that doesn't really work in an online proposition. People want a different offer from us,” he said.
But Rowe also said that he was alive to the trend to move more online with food and was keeping “a very close eye on it”.
Independent retail analyst Nick Bubb said Ocado was the obvious company for M&S to talk to. Ocado is chaired by Stuart Rose, a former CEO and chairman of M&S.
“M&S has been doing some online food trials in London ... so either they have worked well enough, in terms of being able to make rapid delivery work, or Steve Rowe has been overruled by the ambitious new food MD, Stuart Machin, who has the ear of [chairman] Archie Norman,” said Bubb.
Since Norman joined M&S in 2017, the company has accelerated the pace of change.
Norman told M&S shareholders last July: “Unless we change and unless we develop the company in the way we want to, in decades to come there will be no M&S.”
Reuters
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