The United Kingdom is one of the world’s most advanced e-commerce markets, and a new joint venture between Marks & Spencer and online delivery startup Ocado Group, is getting attention.
Ocado is a 16 year old online grocery retailer with over 580,000 active customers. It has previously made news in the United States after Kroger, America’s largest grocery business, bought 6% of the company last year. The attraction by big grocery businesses to Ocado is the company’s high-tech warehousing and logistics technologies including advanced robotics and software.
For Marks & Spencer, reports Bloomberg’s Ellen Milligan and Katie Linsell, the deal goes even deeper than earlier deals. They write:
An agreement with Marks & Spencer would be broader than those deals, which are focused on the use of its technology. The licensing arrangements have given Ocado opportunities in areas where online shopping has grown more slowly than in the U.K., one of the most advanced e-commerce markets.
“This would give Ocado more time and resources to invest and develop the technology side of the business while retaining some interest on the retail side,” said Dusan Milosavljevic, an analyst at Berenberg in London. “It means they can focus more on selling their technology.”
Ocado rose as much as 13 percent, the most since June, while M&S was up as much as 4.3 percent in London. There’s no certainty the talks will result in a deal, Marks & Spencer and Ocado said in separate statements.
By offering home delivery via Ocado, M&S could reach a wider customer base in the U.K., potentially creating a greater challenge to mainstream grocers. The retailer’s large stores in city centers and shopping malls, offering food and clothing, have struggled to compete with e-commerce alternatives, while its convenience food shops offering sandwiches and prepared dinners have fared better.
Until recently, M&S’s grocery arm served as an engine of growth, with the apparel operations in a long decline. But performance has waned in recent quarters, prompting Chairman Archie Norman to step up cost-cutting. The company is moving to close 100 stores across Britain.
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Jeremy Jones, CFA
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