Shares in Marks & Spencer fell by eight per cent in late February following news that the FTSE 100 retailer has signed a £750m joint venture with food delivery firm Ocado, which will see M&S entering the home delivery market as early as next year.
M&S has bought a 50 per cent stake in Ocado UK’s retail business to create a new company called Ocado.com, which will deliver M&S groceries from September 2020, when Ocado’s existing partnership with Waitrose expires.
M&S has funded the deal by selling off £600m of its shares, and by cutting its dividend payments to shareholders by 40 per cent.
Steve Rowe Chief Executive
However, M&S chief executive Steve Rowe said that it was “a fair price” which will ensure the retailer’s long-term growth.
“I have always believed that M&S Food could and should be online,” said Steve Rowe, Marks & Spencer’s chief executive. “Combining the strength of our food offer with leading online and delivery capability is a compelling proposition to drive long-term growth.
“Our investment in a fully aligned joint venture with Ocado accelerates our food strategy as it enables us to take our food online in an immediately profitable, scalable and sustainable way.”
Rowe added that he expects one third of M&S business to come from online sales in the future.
However, despite the promise of long-term rewards, M&S shareholders greeted the news with scepticism. When the markets opened after the news, M&S shares fell by eight per cent, while Ocado’s share price increased by eight per cent.
Meanwhile, analysts have warned that the deal may not represent good value for shareholders.
Neil Wilson, chief market analyst at Markets.com, said: “M&S’s purchase of Ocado’s UK retail business looks rather like one of its own ready meals – expensive, not very good for you but easy, quick and ready to heat up.”
Nick Bubb, an independent retail analyst, said that the deal was “very puzzling”.
“Rowe has the nerve to say: ‘I have always believed that M&S Food could and should be online’ but M&S still haven’t proved that they can generate a high enough shopping basket to make online grocery pay,” said Bubb. “This seems a huge leap in the dark for them.”