Stand and deliver: Waitrose and M&S fight for Ocado customers

When the home shopping service joins forces with the Marks & Spencer empire in September, will its loyal clients stay with it – or substitute instead?

The social media channels of online grocer Ocado are abuzz. Both Sharon and Natalie are exited about the prospect of being able to order Marks & Spencer’s famous Percy Pig sweets from Ocado. Hayley, however, is decamping to, because she is not a fan of M&S food and its “excess packaging”.

The debate is raging because, after nearly two decades, Ocado has ditched Waitrose and done a deal to sell M&S food instead. Shoppers are therefore weighing up the M&S products already offered online as replacements for their Waitrose favourites before the switch on 1 September.

And a battle is under way between these upmarket grocers for the weekly shopping of the nation’s most middle-class, foodie customers.

These shoppers are voicing disappointment at the loss of Waitrose staples and specials – spinach falafels get special mention. But there is also excitement at the prospect of M&S treats at Christmas, concern that its Sparks loyalty card won’t apply to Ocado, and dismay that “gin-in-a-tin” canned cocktails won’t be available online. One shopper has taken out a six-month pass to test out the M&S-Ocado service, while Claire sums up the feeling of the sceptics: “I need convincing that it’s not going to be more expensive, to be honest.”

Waitrose kicked off a social media marketing campaign last Friday, raising awareness of its exit from Ocado in a bid to persuade shoppers to jump ship to its own website. M&S is preparing an ad campaign highlighting its quality and value for money.

The stakes are high. M&S has spent £750m on a half-share of Ocado’s retail arm, to which it will supply its groceries, in a deal viewed as a ballsy roll of the dice by chairman Archie Norman, who is attempting to turn the ailing retailer around.

In February 2019, when the deal was unveiled, City analysts thought it looked expensive, especially as M&S had to raise £600m from shareholders to fund the deal, with no guarantee that Ocado’s picky customers wouldn’t just move to Waitrose’s online service. Analysts at HSBC estimated that more than a fifth of them might jump ship.

But after a bruising few months in lockdown, during which the shift to online has accelerated rapidly, attitudes have changed. “Archie has lucked out,” says one retail analyst. “A lot has changed and this now looks like quite a good deal.”

M&S’s absence from the fast-growing online market has long held it back, but that has never been truer than over the past few months, when there has been little interest in its posh sandwiches at city centre stores – and the group has been mostly excluded from a surge in home deliveries.

Ocado’s sales increased by 40% in May even though surging demand meant it had to shut out most new customers and focus on its regular shoppers. The online specialist has boasted that it has a million customers waiting to sign up, on top of the 800,000 already on board.

“M&S is getting access to an online platform at time when things have shifted so much,” says Andrew Porteous at HSBC. “It is now in a much better position than it would have been otherwise.”

Lockdown is now unwinding, but the rapid growth in the size of the online grocery market, from 7.4% of total grocery sales in March to 13% now, according to market analyst Kantar, is not expected to be significantly reversed.

That growth leaves more room for both M&S and Waitrose to pick up customers in an online market that’s now worth an additional £650m – and less need for “scorched earth” price cuts in an attempt to win over or keep shoppers.

Marks & Spencer sign on window of food hall
Marks & Spencer’s absence from the online market has long held it back. Photograph: Alamy

Stuart Machin, boss of M&S’s food division, says: “One thing we are not going to do is have a race to the bottom on price. Our challenge is to be the best we can be, and we have a multi-year transformational plan. M&S is focused on delivering the right product at the right price for all our customers, and if we do that, and believe in what we are doing, I don’t need to get overly paranoid about people comparing.”

He says the chain’s food prices have already come down by “a considerable amount” in the past two years as part of his plan to improve value and draw in more family shoppers. To avoid seeing shoppers quit as a result of “bill shock”, M&S has tried to match or beat the price on the 4,000 Waitrose products currently stocked by Ocado.

It is equally keen to stop desertions because favourite products suddenly disappear, so has produced near copies of particularly popular Waitrose items, including organic beef meatballs and a mushroom, feta and spinach pizza.

But Machin says the majority of 750 new products developed for the Ocado launch are larger pack sizes – designed for family shoppers – and specialist items such as organics, where M&S didn’t previously have the space or demand to build a full range. “Ocado gives M&S the opportunity to do the range we wanted to do,” he says.

M&S will initially provide 6,000 product lines to Ocado, including homewares and some clothing items, such as socks and underwear, as well as its ready meals, groceries and fresh produce. Almost 5,000 lines are already available to order for delivery from 1 September.

Machin says he is not worried about losing sales from M&S stores to online. “Our market share is very small and our business case for this is really built on the premise that our customers love M&S ... but couldn’t buy everything [they wanted].” At present only about a dozen M&S stores stock the retailer’s full range.

His hope now is that instead of buying some items in his stores and then going elsewhere for the rest of their weekly shop, shoppers will now buy everything they want from M&S, using Ocado. “There will be a halo effect of having all our products online and getting the message out there more actively showcasing [what we sell] if you don’t have a huge M&S near you.”

The switchover will prompt a battle for those high-spending and loyal shoppers who have enjoyed the Ocado and Waitrose partnership over the past 18 years. Waitrose’s products made up about a quarter of Ocado’s grocery sales. Grabbing all of those could lift M&S’s current 3.2% market share to something similar to Waitrose’s current 4.1%.

Porteous suggests that some Ocado waverers may already have jumped ship to other retailers, including Tesco and Sainsbury’s as well as Waitrose, pushed by a lack of available delivery slots during the pandemic. Winning these customers back could prove tricky.

Waitrose entrance
Waitrose has invested heavily in preparation for the switch. Photograph: Andy Rain/EPA

The staff-owned Waitrose supermarket, which is part of the struggling John Lewis group, is not taking this lying down. It has invested £100m in its online business in preparation for the switch, bringing in a new executive chef team and stepping up innovation on products. It has also opened a new distribution centre in Enfield, north London, that has helped it double online orders. A big-budget marketing campaign is also planned.

Waitrose insists it is on track to treble the size of its online business, to £1bn, by the end of the year, helped by increasing demand during the pandemic. Capacity has increased by about 50%, allowing it to offer 160,000 delivery slots each week, and will grow again shortly when a further centre in west London opens.

Waitrose has brought in 5,000 new or reformulated products, representing nearly a third of the 14,000-17,000 own-label goods its sells under well-known brands including Duchy Organic, Essentials and No. 1, its premium range.

Martin George, customer director at Waitrose, said: “We know a lot of people who use [Ocado] love our products, are loyal to our brand and are keen to avoid any disruption. With that in mind, we have focused on retaining and reformulating our customers’ favourite products as well as developing thousands of new ones.”

So both sides are ready for the big switch on 1 September – shoppers just have to choose their delivery driver.

• This article was amended on 19 August 2020. An earlier version contained text of a separate story on meal-kit delivery services that had been appended in error. This text has been removed and relaunched here.


Sarah Butler

The GuardianTramp

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