A leading retail analyst has suggested that Marks & Spencer's proposed tie-up with online-only retailer Ocado will not be enough to turnaround the former's food division.
Marks & Spencer confirmed today that it is ' in discussions' with Ocado regarding a potential joint venture, in response to a report in the Evening Standard that suggested such a venture was imminent. It added that there is currently 'no certainty that these discussions will result in any agreement or as to the timing of any such agreement'.
Changing Behaviour
In response to the news, Thomas Brereton, retail analyst for GlobalData, said that the planned deal is in line with the 'digital first' strategy M&S has been adopting, "to better cope with the rapid changes in shopper behaviour.
"But although a partnership between M&S Food and UK grocery’s tech wunderkind Ocado may seem like a step in the right direction, this attempt to rapidly gain momentum in the online market may be a misstep with short-term gains potentially outweighed by a long-term deterioration of brand awareness online."
Brereton noted that the UK online food market could be worth around £19.4 billion by 2023, meaning it is "understandable" for M&S to want to team up with Ocado.
"In doing so, M&S might hope to simultaneously take a large slice of the online pie in one swoop, and putting a tick in the ‘digital first’ box, having a tech-savvy ally in its back pocket, as well as damming one of Waitrose’s revenue streams by removing it as Ocado’s predominant supplier."
However, he suggests that it would be the "wrong tactic' for M&S to "try to emulate Waitrose’s success through using Ocado as a stepping stone; the Ocado-Waitrose partnership began over a decade ago during the infancy of online food delivery, and M&S is now looking for a foothold in a much more evolved online market.”
Ocado Benefits
Elsewhere, Bruno Monteyne of Bernstein Research said that the reported 50/50 terms of the joint venture "make sense" for Ocado at the present moment.
"It is too early to lose their retail business as it is an essential and unbeatable part of the sales pitch to global customers (i.e. they are not just selling you some hardware/software, they operate it very successfully in the most competitive grocery ecommerce market in the world)," he said. "As a JV it would also avoid legal complications from other existing Ocado partners (Morrisons and Waitrose)."
Elsewhere, analysts Stifel said that he move was a "welcome development that gives M&S a fighting chance".
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
