Ocado's secret talks with M&S could spell the end for Waitrose tie-up

Talks to deliver Marks & Spencer groceries emerge as end to Waitrose partnership looms

Ocado has held secret talks with Marks & Spencer over the launch of a food delivery service that could signal the end of its long running tie-up with Waitrose.

The Ocado name has been intertwined with Waitrose for the past 20 years but the current supply deal between the companies ends in September 2020.

City analysts expect the businesses, which have always had a stormy relationship, to part ways. John Lewis Partnership, which controls Waitrose, no longer has any ownership of Ocado, which is separately quoted on the stock market and is valued at around £6.6bn.

A tie-up with M&S is likely to result in Ocado dropping Waitrose as its key groceries supplier, although it will not leave customers of the upmarket grocer without a delivery option. Waitrose has in recent years developed its Waitrose.com delivery operation run from its own stores and warehouses; at present, customers can order from Waitrose or Ocado.

A report in the Mail on Sunday said that grocery delivery is planned as a key way for M&S chairman Archie Norman to turn around the retailer’s ailing fortunes. The newspaper suggests M&S would be interested in buying key distribution centres, delivery vans and lorries from Ocado.

John Lewis Partnership was one of the early investors in Ocado but sold its holding for about £150m in 2011. Over the past decade, the employee-owned retailer has invested heavily in Waitrose.com, so it already competes directly with Ocado.

Jason Gissing, one of the founders of Ocado, who has since left the business, has previously told the Guardian that John Lewis was “a complete pain in the arse to deal with” and that the two groups fell out regularly. In 2013, Waitrose was unhappy when Ocado signed a contract with Morrisons that enabled it to belatedly launch a grocery home shopping service, a deal that has since expanded.

In recent years, Ocado, which is chaired by former M&S chief executive Sir Stuart Rose, has successfully morphed into a tech firm that makes money out of selling its hi-tech kit to retailers around the world, rather than doing the workmanlike job of selling and delivering groceries.

After several years hawking its wares, Ocado signed a flurry of international partnerships, including with Groupe Casino of France and Canada’s Sobeys, in quick succession. Ocado was billed as the “Microsoft of retail” last year after it signed a blockbuster deal with the US supermarket Kroger that propelled the company into the FTSE 100.

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The supply relationship inked by Waitrose and Ocado in 2010 gave the online retailer the right to sell Waitrose goods for 10 years and to use the brand on its website and on its fleet of vans. It is not clear whether it would be possible for Ocado to work with both Waitrose and M&S on the same basis, at the same time. Other analysts suggested the talks could be sabre-rattling and that Waitrose and Ocado may yet reach a deal to continue in partnership after 2020.

The absence of a fully fledged M&S food delivery service is an anomaly given the growing importance of online shopping. The online grocery market, which was worth £11.4bn in 2018, is expected to grow by 52% to reach £17.3bn in 2023, according to analysis by the food and grocery research organisation IGD.

M&S started experimenting with online food delivery in 2017, but it is yet to put serious money behind the venture at a time when sales in its clothing and food departments are both falling. It is closing at least 100 stores as part of the latest reinvention plan designed to shore up declining profits.

One challenge for M&S will be the number of lines it stocks. The retailer offers just 7,000 products compared with 40,000 at most Tesco shops. It also focuses on exclusive own-brand products with only a limited number of household brands available in stores. It is not clear how the retailer would overcome such hurdles if it wanted to deliver a full grocery shop to customers’ front doors.

Ocado and Waitrose both declined to comment.


Zoe Wood

The GuardianTramp

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