Online grocery store says joint venture is not where they wanted it to go
Ocado’s chief executive admitted that its tie-up to Marks & Spencer was a disappointment thus far. There are signs of tensions among the grocers.
Tim Steiner, the chief executive of Ocado, said that Ocado’s joint venture with M&S was “not where we desired it to be at this stage”.
He said: “If you look at where the business was in 2019 and what we had hoped it would be trading for right now, that’s obviously disappointing.”
Archie Norman Chairman of Marks & Spencer echoed his comments. He told his shareholders that he “was not happy” with the joint venture’s performance and there was still “work” to be done to improve the business.
The pair had hoped to create “a profitable, scalable presence” in the online grocery industry when they struck the deal worth up to £750m in 2019.
Steve Rowe, then the chief executive of M&S, described it as “his biggest and boldest moment to date”. M&S is still in discussions with Ocado about the final payment amount to be paid under the initial tie up deal. This payment will be less than the initial amount set in 2019.
Despite the surge in home delivery demand during the pandemic, the business struggled. The company posted and underlying loss in the six-month period ending May, a £2.5m increase on a £4m last year. Revenue was only up 5pc. The company’s revenue was only up 5pc despite an average price increase of 8pc. These figures were part of an update for the past half year from Ocado. The company, which sells groceries alongside M&S and also develops robotic warehouse technologies for other retailers, released these figures as part of its annual report. The overall losses increased by 37pc, reaching a record £290m in the first half of the financial year up to May.
M&S has recently pushed for closer collaboration. This includes adding more products to the Ocado site and launching them simultaneously with their rollout in stores. M&S executives want to see more of their products promoted higher on the Ocado home page.
The management of the online grocery store is aiming to include all M&S products on the website, except for food-to go such as sandwiches.
Clive Black, a Shore Capital analyst, said that it came after a period in which Ocado’s management appeared to “lose their focus” on M&S. He said that the Waitrose brand was more prominent and well-known on Ocado, and he thought M&S’s frustration about why their food and products weren’t promoted more strongly is understandable.
M&S’s chief executive Stuart Machin informed investors earlier this month that the company was making progress in expanding the number of products it sells on Ocado. More than 700 products have been added to Ocado over the last few months.
He was critical in the past of M&S’s marketing team sending emails with recipes to customers and directing them to Ocado to purchase, only to find that those items were not available. Mr Machin stated that it was important to “get the basics right”.
Ocado Group boss, Mr Steiner, said that the grocery business is making the “right moves” to achieve what everyone hoped it could be. This was after Hannah Gibson took over the running of the business in September last year.
The UK is “over the worst of the food inflation in the UK,” said Ocado Group’s CEO.
M&S shares soared after the comments. They surpassed PS2 during intra-day trading. M&S’s shares are trading at the highest level since last year.
Despite this, Ocado Group shares soared to a five month high, up by more than 19pc, sending the company to top of the FTSE 100 after it revealed that its technology business had become profitable for the very first time. The company’s revenues were up by 8.6pc compared to last year. Recently, it opened its first robotic warehouse in Asia.