Ocado and Marks & Spencer, how the e-grocery changes

Marks & Spencer
12 Mar 2019

Ocado Group and Marks & Spencers announced in February the creation of a new equal joint venture. The decision is due to the strategic placement of the two English retailers, both of which listed on the English Stock Exchange, in the online grocery market.

Marks & Spencer, with more than 130 years of history, is one of the biggest names of British retail. With revenues of £11 billion GBP, £4b of which from non-food sectors, accounts for 85 000 employees for 1300 supermarkets worldwide. It is also available online and in Australia and New Zealand, it is only available in that form

Ocado is a pure online reseller, active since the year 2000 without a physical distribution system, with more then 70 000 active clients. Its revenues amount to £15 billion GBP, it boasts a technological infrastructure to support distribution among the best in the world.

This is the reason of the strategic accordance last May with Kroger. The American giant will build up to 20 Customer Fulfillment Centres, using Ocado’s technologies. From January 2014, moreover, Ocado delivers food online of behalf of Morrisons, another of the most important food distributors of the UK. 

Strategic goals

The joint venture will become operational from September 2020, when the actual agreement between Ocado and Waitrose will cease. The latter is another market leader of grocery distribution in the UK. A sort of institution, which is the official Corona distributor.

For Steve Rowe, CEO of Marks & Spencer, “combining the strength of our food offer with the best online delivery, helps to build long term growth”. And, still, “it is a matter of the transformation of online shopping in the UK”.

M&S operates online, typically with a premium but limited offer. The joint venture with Ocado with will give access to a far greater offer, and this should increase the average shopping basket of clients. In 2018, Ocado registered an average shopping basket value of £107 GBP, higher than that of M&S. A low shopping basket value renders online distribution uneconomical.

For Ocado, the advantage is double. From one side it incease its own purchasing power from suppliers, from the other it frees itself from the suffocating clutch of Waitrose. 

Waitrose, the obstacle

All good then? No, David McCarthy, analyst of the retail section of HSBC, has described the opinion of the involved consumers are “worrying”. According to a recent study, the main part of Waitrose shoppers do not M&S as good substitutes. .

Waitrose believes that around 40% of Ocado shoppers visit Waitrose stores. For the suppliers of Queen Elisabeth, this partnership will be of difficult reconversion. It will not be easy to convince clients to give up the sophisticated handling of delivery which has been guaranteed thus now.

Ocado, on the other hand, wrote to its clients: “the only change which you will notice will the opportunity to buy thousands of food products from the brand M&S”.

The games have now begun, and the results will be known next year. In this period, obviously, no unexpected move can be excluded.