Online grocer Ocado and high-street retailer Marks & Spencer have announced plans to work together on a new joint venture.
The companies will each own half of the service, after M&S buys 50% of Ocado’s existing UK retail business for £750 million.
What is a joint venture?
A joint venture – often abbreviated to JV – is a commercial enterprise undertaken jointly by two or more companies which otherwise remain distinct.
It means outside of online food delivery in the UK, M&S and Ocado will continue to trade separately. Unlike a merger, in which all the business and assets of companies would be integrated, the deal will see M&S’s high-street retail operations and Ocado’s technology arm operating independently.
The firms will each own half of the joint venture, meaning they will each reap half the rewards in terms of profits.
What does this mean for Ocado customers?
Ocado already has a sourcing partnership with Waitrose, but this will now end in September 2020. From that point on, Ocado customers will not be able to buy Waitrose products on the platform.
Shoppers who want to stick with Waitrose can shop directly through the supermarket’s own website. Waitrose said on Wednesday it will add another warehouse to keep up with growing customer demand.
What does this mean for Marks & Spencer customers?
Devotees to M&S Food will be able to order their products online. Previous trials of an in-house delivery service at the retailer have proved uneconomic, preventing a full roll-out.
Customers can also expect lower prices across the board, according to chief executive Steve Rowe, who said this was a possibility due to the anticipated cost savings in the deal.
He added that the chain may even look into stocking Ocado products on its shelves.
Ocado is also trialling a one-hour delivery service called Zoom, meaning M&S customers could expect to order instant Percy Pigs to their door in just a few years’ time.
What about the fire?
Bosses from M&S and Ocado said the deal was signed off at 6am on Wednesday, meaning teams would have had the chance to discuss the fire which destroyed Ocado’s Andover facility in early February before agreeing the joint venture.
On a media call, Mr Rowe said the issue had been “discussed” and M&S remained confident that Ocado’s technology was “first class”.
What happens next?
Ocado’s commercial relationship with Waitrose is subject to an 18-month break clause, meaning the new venture will not launch until September 2020.
In the meantime, M&S must raise the money to complete the deal by issuing new shares and cutting its dividend.